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House of Lords

Monday, 31 March 2014.

2.30 pm

Prayers—read by the Lord Bishop of Leicester.

Retirement of a Member: Lord Grenfell

Announcement

2.37 pm

The Lord Speaker (Baroness D’Souza): My Lords, I have to notify the House that the noble Lord, Lord Grenfell, has indicated his wish to retire permanently from the service of the House. His retirement will take effect today. I am sure that the House will wish to join me in recognising the many years of service that the noble Lord has given to this House. Furthermore, the House will want to congratulate the noble Lord on taking this difficult but entirely praiseworthy step. On behalf of all your Lordships, I wish the noble Lord a very happy retirement.

Airports: Heathrow

Question

2.37 pm

Asked by Lord Spicer

To ask Her Majesty’s Government whether they have made any assessment of the future ability of United Kingdom airlines to operate out of Heathrow Airport.

The Minister of State, Department for Transport (Baroness Kramer) (LD): My Lords, the Government have made no such assessment. The future ability of United Kingdom and other airlines to operate at specific airports is a commercial matter for airlines and airports. The Government publish aviation forecasts for the UK, including air transport movements and passenger numbers, most recently in January 2013. The independent Airports Commission will report in 2015 on any recommended requirements for additional capacity to maintain the UK’s global hub status.

Lord Spicer (Con): Is the Minister aware that it is because of the uncertainties about capacity at Heathrow that British Airways is undecided about whether to keep a big hub there? Would that not have been unthinkable in the 1980s, for instance, when Heathrow was the No. 1 international airport in the world and when I was Minister of Aviation?

Baroness Kramer: My Lords, Heathrow is an incredibly successful airport where many people vie for slots. The commission has been clear that there is no crisis of capacity in the south-east now, although it concluded that we will need one additional runway in the south-east by 2030 and, in all likelihood, a second by 2050. In the mean time, the noble Lord will note that the UK has

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the third-largest aviation network in the world after the USA and China. London serves 360 destinations, in comparison to Paris at around 300 destinations and Frankfurt at 250.

Lord Bradshaw (LD): As regards the information that we have had today about climate change, will the Minister update the House on what progress is being made to improve the ground connections, specifically the rail connections, from Heathrow, which matter whether or not we have a third runway there?

Baroness Kramer: My Lords, we expect the commission’s recommendation to be consistent with our plans to cope with climate change, but the noble Lord will of course be aware that the commission, among others, reported into HM Treasury’s national infrastructure plan, which was published on 4 December. That recommended quite a number of enhancements for rail access. As a consequence of that, work will be done to provide rail access at Heathrow from the south. More is being spoken about that today as part of the announcement of how Network Rail will spend £38 billion that has been provided. Indeed, further enhancements to surface access for Gatwick and Stansted are in that national infrastructure plan.

Lord Clinton-Davis (Lab): The Minister is complacent. Does she realise that while we delay, Frankfurt, Schiphol and Paris are all thriving and expanding? Meanwhile, the main sufferers will be British Airways and British aviation. Is it not time for an altered Heathrow to provide the obvious choice for expansion? In that way, British airlines will expand with it.

Baroness Kramer: My Lords, as the House will know, the Davies commission is looking precisely at the capacity issue in the south-east and will recommend what it considers to be the best way to respond to it. That report will come in 2015. The Government of the day will then decide how to respond to the report. Given the quality and quantity of the work, it would be wrong to pre-empt that decision.

Lord Stoddart of Swindon (Ind Lab): My Lords, I congratulate the Government on their decision to extend Crossrail to Reading after much representation by the local authority, residents and indeed Members of Parliament. Will the Minister confirm that that will provide after 2019 a direct link to Heathrow, which will serve well not only Reading but the many other places that can be reached from Reading? I declare an interest as I live there.

Baroness Kramer: The link from the west is crucially important. More was said again today in the announcement about Network Rail and we are always delighted to hear congratulations.

Lord Davies of Oldham (Lab):We all know that the Government congratulate themselves on having kicked into the long grass the crucial issues of what to do about an additional runway in the south-east. But Sir Howard Davies produced an interim report in

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2013, which had some constructive suggestions. I cannot for the life of me understand why the Government are similarly inert about those issues. For instance, one of his recommendations was that we should establish an ombudsman to identify the irritation, difficulties and problems associated with noise at Heathrow. Why on earth do the Government not act on that? After all, we know that the big problem with regard to the location of the additional runway is people’s anxiety about noise.

Baroness Kramer: The noble Lord is right that there are many interesting suggestions in the interim report. The Government will respond to that shortly, but they are substantial recommendations that deserve a great deal of consideration before we come to a conclusion. As I said, we will respond shortly, but unfortunately I am not in a position to do that today.

Baroness Tonge (Ind LD): My Lords, will the Minister accept that the present method of measuring the noise of aircraft coming in and out of Heathrow is seriously deficient? In fact, the lowest levels disturb residents far more than anyone can imagine. Will she say what plans the Government have to revise how they measure noise levels from aircraft, following the noble Lord’s question earlier?

Baroness Kramer: The issue of noise, as people will understand, is a contentious one that has been addressed in a number of ways in the interim report presented by the Davies commission. Our response to that noise issue will be part of our response to the overall interim report.

The Lord Bishop of Birmingham: My Lords, will the Minister take note of the increased capacity of regional airports in this country—for example, the extended runway at Birmingham? Will she encourage airline users and businesses to use these airports not only for the convenience of British travellers but also for the increased capacity and enjoyment of visitors to this country?

Baroness Kramer: My Lords, it is indeed true that regional airports play a very important role. That has been widely recognised in the Aviation Policy Framework published by the Government last March. It is also true that Birmingham is expanding its runway; there are other upgrades of various kinds at both Bristol and Southend; and Manchester Airport is playing a very important role with its airport city enterprise zone development project. I recommend those airports strongly to anyone considering travelling.

Armed Forces: Biofuels

Question

2.46 pm

Asked by Lord Soley

To ask Her Majesty’s Government whether they intend to increase the use of biofuels by the armed forces.

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The Parliamentary Under-Secretary of State, Ministry of Defence (Lord Astor of Hever) (Con): My Lords, the Ministry of Defence uses biofuels for road transport where EU legislation obliges manufacturers to include a percentage of biofuels in the fuel they produce. The use of biofuels for marine and aviation use is governed by the requirements and approvals of the department’s equipment manufacturers. The Ministry of Defence is encouraging these manufacturers to work towards adopting biofuels in the future.

Lord Soley (Lab): Will the Minister put this on his agenda and take it forward? Is he aware that by 2020 the United States navy will be using ships and aircraft that use some 50% biofuels? These are not from farm produce; they are from algae and other fuels. The US air force is flying F18 high-performance jets on 50% biofuels. The Italians and the Dutch are using it, so will he—particularly on this day, bearing in mind the United Nations report—go back to his department and say, “We ought to be up there with them using biofuels in ships, planes and ground transport”? Will he also take that matter to NATO and, preferably, keep the House informed of his progress?

Lord Astor of Hever: My Lords, we are aware that the United States and the other countries mentioned by the noble Lord are experimenting with biofuels in their naval vessels and aircraft. The results of the performance of the fuels are being shared through equipment manufacturers and international forums such as the Air and Space Interoperability Council. The defence equipment and support fuel team regularly engages with manufacturers to understand the most recent research and how this might apply to the MoD’s fuel requirements in the future. Biofuels, however, are not the only answer, and the MoD will use the most appropriate solution available to reduce fossil fuel consumption, whether that is through using alternative technology or equipment, reducing activity levels, using alternative fuels or interoperability with our allies.

Lord Trefgarne (Con): My Lords, is there not more than one respectable view as to the desirability of biofuels, given the extensive agricultural facilities required to produce them?

Lord Astor of Hever: My Lords, I am aware of the concerns about biofuels competing with food production but, as I said in my opening response, the MoD uses biofuels for road transport where EU regulations oblige fuel manufacturers to include them, and only for that.

Lord Rooker (Lab): Does the Minister accept that most innovation in this country relating to fuels and materials starts from the motorsport industry? Have the Armed Forces picked up any tips from that thriving industry?

Lord Astor of Hever: My Lords, I am delighted that the noble Lord asked that question. I assure him that we are working very closely with the motorsport industry, which—as the noble Lord knows better than most—is expert in lightweighting and energy-efficient use of fuel. All Formula 1 engines have advanced energy recovery systems that reduce their fuel capacity by 40% and reduce their engine size, too, but must deliver

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the same power output. Race cars recover and store significantly increased energy from braking and from their turbochargers.

Lord Palmer of Childs Hill (LD): My Lords, they are using more biofuels in the United States, particularly in the Sikorsky Blackhawk helicopter and—as the noble Lord, Lord Soley, said—in the navy’s farm-to-fleet project. That has had a significant effect on the change of use from food crops to biofuels. Taking a slightly different line from other questions, will the Minister tell the House that the Army, Navy and Air Force will look closely into the development of biofuels and how it affects the reduction of food production in the UK?

Lord Astor of Hever: My Lords, I stand by my response to my noble friend earlier. As I said, this is for use only where UK regulations oblige fuel manufacturers to include them. As that use is both limited and obligatory, the MoD has no plans to conduct any form of appraisal.

Lord West of Spithead (Lab): My Lords, the noble Lord must agree that we have solved some of these fuel problems by having fewer and fewer ships and fewer and fewer aircraft. I looked historically at the 1950s—I needed to for a certain reason—and, on average, every year we commissioned between 15 and 20 warships. How many ships were commissioned in the latest financial year?

Lord Astor of Hever: My Lords, the noble Lord is using his imagination to try to tempt me to discuss the number of ships. This Question is about biofuels.

Lord Elton (Con): My Lords, in replying to two supplementary questions, my noble friend relied on the effects of biofuel cultivation on agriculture but surely another major, and possibly longer-term, anxiety is the destruction of forestry, particularly in South America, which is reducing a diminishing resource that is a means of absorbing excess carbon in the atmosphere.

Lord Astor of Hever: My Lords, I am well aware of the concerns for both agriculture and forests. As I said earlier, the Ministry of Defence is such a small user of biofuels that I would rather not get into this debate.

The Countess of Mar (CB): My Lords, I understand that there is a second generation sort of biofuel that does not use food and food products but is generated from bacteria, using waste materials. How much of this biofuel is used in Ministry of Defence operations?

Lord Astor of Hever: My Lords, I cannot answer that question but I refer to a Question asked by the noble Baroness, Lady Worthington, last year. When the noble Lord, Lord Soley, asked a supplementary question about this, my noble friend replied that these are termed “advanced biofuels”, which I think relates to the question of the noble Countess. They,

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“do not have a land-take impact—certainly not in terms of taking land out of agricultural use or requiring a reduction in rainforest. Moreover, they do not have an impact on food production. Consideration is being given to greater incentives for the production of advanced biofuels”.—[

Official Report

, 27/3/13; col. 1077.]

Film Industry

Question

2.53 pm

Asked by Baroness Eaton

To ask Her Majesty’s Government what steps they are taking to support and expand the British film industry.

Lord Gardiner of Kimble (Con): My Lords, the Government are committed to encouraging film production through public funding and some of the most generous creative tax reliefs in the world. Skills development and measures to introduce larger audiences to the widest possible range of films are helping to nurture the next generation of film-makers and viewers, so that the UK film and allied industries, which generate nearly 117,000 jobs and contribute £4.6 billion to national GDP, continue to prosper.

Baroness Eaton (Con): Coming from Bradford, I am delighted that film in the UK is thriving and is one of the main drivers for growth in the economy. What are Her Majesty’s Government doing to encourage skills development and training in the film industry?

Lord Gardiner of Kimble: My Lords, I should first congratulate Bradford on being recognised as the world’s first UNESCO City of Film. Skills for digital and creative industries are vital, which is why the Government have increased their match funding of the skills development fund and are investing in the National Film and Television School’s digital village. The BFI has launched Creative England, its new talent workshop, and the industry is also engaged with apprenticeships and the BAFTA scholarships.

Baroness McIntosh of Hudnall (Lab): My Lords, is the noble Lord aware that the National Theatre has recently pulled off a considerable coup in tempting Tessa Ross from Film4 to join the National Theatre as chief executive? Jolly good for them, not so good for the film industry—but never mind. What it demonstrates is that there is a high degree of interdependency between the film industry and theatre in particular, with a number of very successful practitioners—directors, actors and screenwriters—coming initially from the theatre. Does he therefore accept that the health of the film industry depends to a significant extent on the health of the theatre?

Lord Gardiner of Kimble: My Lords, I think that I would go further and say that the creative industries generally are all part of the scene we have for film and the allied industries: technicians, theatre—I am very pleased with the tax reliefs for regional theatre now,

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for instance, in the Budget—high-end TV and animation. All of those should be seen as a whole, because the creative industries are an essential part of our national economy.

Baroness Bonham-Carter of Yarnbury (LD): Following on from the noble Baroness’s question, does my noble friend agree that at the heart of the success of the British film industry are public service broadcasting television channels—from which Tessa Ross comes, of course—and that the continuing existence of Channel 4 and the BBC, funded as they are today and with their respected remits and models, is central to the continuing success of our British film industry?

Lord Gardiner of Kimble: My Lords, the key feature, and why it has been such a successful sector, is the mix of both commercial and public sector broadcasters. I had a meeting last week with Channel 4. I was very impressed with its encouraging of apprenticeships with 4Talent and, indeed, with the BBC and its apprenticeship schemes. All of this is part of a mix in this sector, all of which is vital for our prosperity.

Lord Stevenson of Balmacara (Lab): My Lords, I declare an interest as a former director of the British Film Institute. Given that the BFI cannot use lottery funds for its own activities, how does the Minister square what he has just said about the British film industry and support that the BFI gives with the recent 10% cut in the BFI’s budget, when other arts bodies are absorbing only a 5% cut?

Lord Gardiner of Kimble: My Lords, the reduction that the noble Lord mentioned is actually in line with the average across government. However, in terms of the BFI and what it is doing, I think it is an example of perhaps doing very well with a little less. In addition, the BFI Player, with a further investment, is all part of the advances in innovation. Certainly the initiatives that BFI is undertaking are very interesting and will help enormously to widen audiences.

Lord Dobbs (Con): Is my noble friend aware that no Hollywood awards ceremony proceeds nowadays without accolades being showered on British films such as “Gravity”, “12 Years a Slave”, “Philomena” and, of course, the everlasting “Downton Abbey” and its ever youthful creator? Sadly, he is not in his place today—he is probably off doing something creative. Is my noble friend aware that American audiences greeted with shock the news that the all-action hero of “Homeland” was not American but, indeed, English—Damian Lewis, who is not only British but educated at Eton. At the risk of encouraging my noble friend to appear something of a luvvie, which of course I would not wish to do, can he think of any reason why this whole exercise should not be regarded as a great British success story?

Lord Gardiner of Kimble: My Lords, perhaps I should include my noble friend in the list of accolades. I can do no better than refer to the president of Warner

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Brothers UK, who recently described Britain as in the centre of a “new golden age” of film. It is interesting that Warner Brothers is investing £100 million in creating new studios at Leavesden.

Lord Foulkes of Cumnock (Lab): On this Lord’s day, it is a privilege to follow a reluctant hero in this House of cards—I have read them all, as well. Seriously, has the Minister had discussions with his Scottish counterpart about setting up a new film studio in Scotland, which is long overdue?

Lord Gardiner of Kimble: My Lords, I have not had direct discussions, but I understand that Creative England, which is funded by the BFI, is working with creative elements in all parts of the kingdom on that. I can also say that the British Film Commission, also funded by the BFI, is looking at places where international productions can invest. I know of a studio opening in west Wales, for instance, and I will look into what might be happening in Scotland.

The Earl of Sandwich (CB): The Minister mentioned the BFI at some length and online training, but I do not think that he mentioned film schools. Is anything being done to support film schools, because the United States is rather ahead of us in that? I declare an interest: my son was a director of the film school in Ealing Studios.

Lord Gardiner of Kimble: As I mentioned, BAFTA is undertaking some scholarships and actors are working with people who want to get into the industry. I will look into the question of film schools. I know that it is now very much less expensive to have a film made in this country than it is in America.

Housing

Question

3.01 pm

Asked by Baroness Browning

To ask Her Majesty’s Government what measures they are taking to increase the supply of housing.

The Parliamentary Under-Secretary of State, Department for Communities and Local Government (Baroness Stowell of Beeston) (Con): My Lords, this Government are getting Britain building again. Housing construction is at its highest level since 2008. Affordable homes will soon be delivered at the fastest rate for more than 20 years and our latest Budget measures, which include extending the Help to Buy equity loan scheme, supporting a garden city at Ebbsfleet and providing a £525 million fund to support SME builders to get going on smaller sites, will support more than 200,000 more new homes.

Baroness Browning (Con): As well as Help to Buy, will my noble friend confirm that the Government will continue to promote the right to buy, which has been

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so successful in helping people in social housing to become homeowners? The shadow housing Minister, Jack Dromey, told last year’s Labour Party conference:

“I was one of those in the 1980s who led the charge against the right to buy. We were half way across the field of battle we looked over our shoulder and there was no”,

one,

“behind us—there were 1.5 million housing tenants who bought their homes”.

Does my noble friend agree with him?

Baroness Stowell of Beeston: I certainly welcome the conversion of the shadow housing Minister to supporting the right to buy. I wish only that he would speak to his Labour colleagues who are in government in Wales as they seem to be doing everything they can over in Wales to prevent people exercising their right to buy. The contrast here in England is stark. I can reassure my noble friend that it is very much an important part of our housing strategy. We have increased the discounts available to those who wish to exercise their right and our commitment to replace the additional homes sold under our reinvigorated scheme will mean that even more people will have the same opportunity in future.

Lord McKenzie of Luton (Lab): My Lords, I think that Jack Dromey is the former shadow housing Minister. Last year, the Government built the lowest number of genuine social homes for more than 20 years. We know that the Mayor of London has banned Labour councils from insisting on the building of genuine social homes through Section 106 agreements in his London plan—this against the guidance of the planning inspector. Indeed, we believe that he has just announced that at the dockyards at Deptford they are planning for 3,500 luxury flats—not a single affordable home, unless you are a millionaire, of course. Does the Minister seriously support that approach?

Baroness Stowell of Beeston: It is a shame that Jack Dromey is the former shadow housing Minister, because he very much supported our policy—talking about it as a policy of aspiration. On social housing, I say to the noble Lord that more council housing has been built under this Government than in all the 13 years of the previous Labour Government.

Baroness Grender (LD): Does the Minister agree that it is most welcome news in the Budget that we now have a new garden city being built for the first time in a generation? Can she share with us the lessons learnt from the first and failed attempt to build Ebbsfleet when it was commissioned by the noble Lord, Lord Prescott, in 2003, and can she widen that lesson for us and explain how it can be applied to ensure that we do not have to wait for another generation before the next one?

Baroness Stowell of Beeston: The key lesson to be learnt from the previous Labour Government is that they set targets and tried to impose new towns and cities but ended up building nothing but resentment, whereas this Government support locally led

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developments. We will be publishing our garden cities prospectus soon so that locally led proposals and plans can come forward.

Baroness Greengross (CB): My Lords, given the removal of the housing borrowing cap, which I support as a vice-president of the Local Government Association and which is supported by a large number of housing stakeholders, and the Deregulation Bill, which has clauses in it that will increase eligibility for the right to buy, I hope the Minister will agree with me that it is more important than ever that receipts from houses sold under the right to buy are recycled into replacement homes, and that replacement homes include designed homes that are convenient for the ageing population, which we all know about, so that those homes will be freed up for young people, who have a huge need for new homes.

Baroness Stowell of Beeston: I can certainly say to the noble Baroness that our policy is clear that the money raised from right-to-buy sales should be used to provide newer affordable houses for rent. As for providing housing that is tailored very much to the older generation, we certainly encourage local authorities in producing their local plans to be clear about the needs of their local population and to make sure that there are provisions in those plans for older people as well.

Lord Campbell-Savours (Lab): Although it is true to say that the right-to-buy policy has been a success in some parts of the United Kingdom, is it not also true that it has been an absolute disaster in London, where people were able to buy their flats for £50,000, £60,000 or £70,000? Those former council flats are now on the market in London at £600,000 and £700,000 and very often the people who bought them have put them back on the market and sub-let them at exorbitant rents of £400 and £500 a week. What has happened to council housing in London is a scandal.

Baroness Stowell of Beeston: The most important thing that we need to do for housing right across the board is to increase supply. We are certainly increasing the amount of affordable housing. I might say to the noble Lord that we have built more than 170,000 new affordable homes since 2010, and two of the top five areas of the UK benefiting from this were in Tower Hamlets and Hackney.

Domestic Renewable Heat Incentive Scheme Regulations 2014

Motion to Approve

3.08 pm

Moved by Baroness Verma

That the draft regulations laid before the House on 11 February be approved.

Relevant document: 23rd Report from the Joint Committee on Statutory Instrument, considered in Grand Committee on 26 March.

Motion agreed.

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Enterprise Act 2002 (Protection of Legitimate Interests) (Amendment) Order 2014

Enterprise and Regulatory Reform Act 2013 (Competition) (Consequential, Transitional and Saving Provisions) Order 2014

Copyright (Regulation of Relevant Licensing Bodies) Regulations 2014

Motions to Approve

3.08 pm

Moved by Viscount Younger of Leckie

That the draft orders and regulations laid before the House on 3 March be approved.

Relevant document: 23rd Report from the Joint Committee on Statutory Instruments, considered in Grand Committee on 26 March.

Motions agreed.

Water Bill

Report (2nd Day)

Relevant documents: 20th, 22nd, 23rd and 24th Reports from the Delegated Powers Committee.

3.09 pm

Amendment 88ZA

Moved by Lord Whitty

88ZA: After Clause 50, insert the following new Clause—

“Onshore oil or gas activities: effect on water environment

In Part 1 of Schedule 5 to the Environmental Permitting (England and Wales) Regulations 2010 (environmental permits) after paragraph 13 there is inserted—

“Onshore oil or gas activities: effect on water environment

13A. Without prejudice to the operation of regulation 35(2) and paragraph 5(1)(d) of Schedule 10 and of regulation 35(2) and paragraph 7(j) of Schedule 20, the regulator shall refuse an application for the grant or variation of an environmental permit or for the transfer in whole or in part of an environmental permit if—

(a) the regulated facility to which the application for, or transfer of, the environmental permit relates is to be carried on as part of an onshore oil or gas activity; and

(b) the regulator is not satisfied that the applicant or the proposed transferee has made or will make adequate financial provision for preventing or mitigating pollution of the water environment, by ensuring all of the following—

(i) operation of the regulated facility in accordance with the environmental permit;

(ii) compliance with any enforcement notice or suspension notice or prohibition notice or mining waste facility closure notice or landfill closure notice which may be served on the applicant or transferee by the regulator under these regulations;

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(iii) compliance with any order of the High Court which may be obtained against the applicant or transferee under regulation 42 for the purpose of securing compliance with any of the notices listed in sub-paragraph (ii);

(iv) compliance with any order of any court issued under regulation 44 against the applicant or transferee; and

(v) recovery by the regulator of its costs upon any exercise of its power against the applicant or transferee under regulation 57;

(c) for the purpose of this paragraph “onshore oil or gas activity” means any activity for the purpose of exploration for or extraction of onshore oil and gas;

(d) for the purpose of this paragraph “adequate provision by way of financial security” means financial provision which is sufficient in value, secure and available when required.””

Lord Whitty (Lab): My Lords, this subject may be familiar to the cognoscenti because it has been before this House in Committee and was discussed in the Commons. I am bringing the amendment back because it is an issue that the Government will have to face up to at some point, whether in this Bill or elsewhere, and the sooner the better. It concerns the effect on water supply and water quality of fracking for shale gas or oil.

I have been looking at earlier debates on similar amendments, and the Government’s responses here and in another place seem to reflect that they have assumed that this is an anti-fracking amendment. It is not. Indeed, it assumes that there will be significant development of shale gas over the next period, and that such development will eventually and inevitably use significant amounts of water, and may have detrimental effects on the quality of water and ecosystems if not effectively regulated. It makes no judgment on the broader issue of shale gas and fracking and its effect on overall energy strategy. We could have a debate on energy strategy today; if noble Lords want my view, it is that while there will be a significant development of shale gas in the UK and in Europe, it is unlikely to result in the kind of transformation in prices, energy supply and energy mix that we have seen in the United States. In terms of its effect on climate change and the carbon market, it rather depends. If shale gas leads to a faster reduction in the use of coal and oil for generations, then it will be positive. If it slows down the adoption of nuclear and renewable technologies, it will be negative.

Either way, there are concerns about the immediate environmental and resource effects of fracking processes—primarily, and in the context of this Bill, in relation to water. These effects occur in three broad ways. The first is the possible pollution of water systems and aquifers by chemicals that are released in the fracking process, and the release of methane. Secondly, there is the substantial effect on the level of abstractions and supplies of water needed in the fracking process itself. Fracking companies will need huge supplies of water—clean water, rather than direct abstraction—and that will have an effect on the levels of water resources available, sometimes in our most overstretched river catchment areas. That will therefore have an effect on total supplies and indeed on the cost of water. Thirdly,

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there are the effects of the operation of cleansing the water that is used in the fracking process prior to its re-entry into the water system, and its effect on the robustness and the operation of water treatment plants. On all three fronts, things can go wrong, and it certainly means that there are significant changes in both the water catchment structure and in availability and on the delivery of clean water.

I am not scaremongering. It is perfectly possible to regulate the fracking process to minimise pollution and to avoid drastic damage. It is possible to license the use of water and the supply of water resources so as to avoid any major curtailment of overall supplies. However, it is also true that the effects will not be contained by regulation operation by operation, and that there will be aggregate effects and potentially significant damage to ecosystems and detriment to the water systems over time. The amendment would recognise that and would try to ensure that the fracking operators, as a condition of their licence, made provision for possible future damage to the water supply system and the costs of clean-up. History shows us the necessity for this. Previous generations of different forms of energy sources—coal and nuclear, for example—show that substantial potential damage was done to the environment, in terms of subsidence or whatever, to the landscape and to public health but that liabilities or potential liabilities were not met by the entity actually doing the damage, whether that was the state in the nationalised period or the private owners of coal mines. The cost has in effect been met by taxpayers.

3.15 pm

Likewise, with nuclear in the early stages there was no provision for operators to cover the cost of decommissioning, disposal of nuclear waste or any potential damage and health hazards caused by it. It is true that for the future development of nuclear plants in this country there will be such provision and those liabilities will be covered. This amendment would make sure that we did not repeat those same mistakes in relation to the new source of gas and oil—the shale gas and shale oil produced via fracking. If there is to be a widespread take-up of fracking, it is important that we make such a provision and that we make it mandatory. The liability must rest with the entity that has caused the damage. That is the purport of this amendment. The Government are going to have to face up to this at some point and since we are dealing with water here, which is a major dimension of the issue, I think it is relevant to this Bill. If the Government do not consider that to be the case then they need to tell us when and where they are going to legislate and regulate to meet this point. I repeat: this is not an anti or pro-fracking amendment; it is one to deal with the long-term consequences. I hope the Government will see that. I beg to move.

Lord Cameron of Dillington (CB): My Lords, I strongly support this amendment. Indeed, I strongly support the fracking industry. We need to pursue all possible energy options at a time of high-energy costs and uncertain energy sources. The crisis in Ukraine is perhaps a sharp reminder of Europe’s unwise overreliance on Russian gas. Furthermore, when visiting Brussels

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to investigate EU energy policy it was made clear to us on Sub-Committee D last year—or perhaps the year before; I forget—that the EU was looking very closely to us, the admired and well respected Brits, to show the proper way for fracking to be done so that others within the EU could copy us. By the proper way I mean taking into account all the necessary environmental safeguards as are inherent in this amendment. So my first point is that Europe is watching us and that what we do could set a precedent for other EU countries, such as Poland.

My second point is that that we have to bring the public with us on fracking. In this context it is important to remember that a fracking borehole or well produces 85% of its deliverable gas within the first 12 months after it has been drilled. So if we are going to have a sustainable and long-term gas industry from fracking, then we will need to have a large number of holes or wells drilled over the coming decades. I made the point at Second Reading that in order to do this the public have to have absolute faith that the companies involved will clear up any mess that they make as opposed to the taxpayer clearing it up or, worse still, the mess being left to the locals to sort out. I am sure that the chances of any mess being made are very limited, so any insurance or bond necessary will not be particularly costly, but for the sake of the fracking industry across Europe it really must be done.

Lord Shipley (LD): My Lords, on the face of it this seems a reasonable amendment and I agree with much of what has been said in the two contributions so far. The issue is actually a very specific one around the financial resilience of companies engaged in fracking. Some of these companies may be small and as a consequence of that it is very important that their financial resilience is clearly demonstrated. We already have onshore drilling in the United Kingdom so the question is whether existing regulations impacting on those operations suffice in the case of the introduction of horizontal fracturing or shale gas.

I seek the Minister’s confirmation that the Department of Energy and Climate Change already requires operators to have the financial resources to meet any liabilities, including prevention of contamination. I think that in Committee we were informed that a fund was to be created to guarantee financial sufficiency and long-term cover in the event that a company ceases trading. We have to be clear what problem this amendment seeks to solve, partly because the UK regulatory system seems to be much stronger than the regulatory system in the United States, although the US environment has been made much more robust in recent years.

I understand that our regulations are already very tough and the use of hazardous chemicals is not permitted. Can the Minister confirm this and that the statement made in Committee that the regulatory framework would be further enhanced would meet any concern that this amendment addresses?

There are three issues around water. First, there is the composition of the fracturing liquid. I understand that it already requires the approval of the Environment Agency. Can the Minister confirm that? Secondly, there are ways in which water can be contaminated.

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There is ground-water contamination by hydraulic fracturing, not least from poor-quality well casing. Anything that leaks out might contaminate ground-water if it can rise to the point where the ground-water is. Methane might rise into ground-water from lower down as a consequence of hydraulic fracturing. Thirdly, there is wastewater. I understand that even at the high end of shale gas extraction, it would amount to only 3% of the annual wastewater rate because extraction industries and others produce wastewater. Are the existing regulatory requirements around the handling of wastewater sufficient?

The critical element this amendment relates to is the financial resilience of the companies. Almost certainly, a number of companies that undertake shale gas fracking in the foreseeable future might not be in existence in, say, 30 years. What will be done to create a fund through pooling to enable that financial resilience to be demonstrated?

Baroness Parminter (LD): My Lords, ensuring we have the right regulatory framework and the financial means to deal with the potential environmental impacts of fracking are important issues and therefore I most sincerely thank the noble Lord, Lord Whitty, for raising this matter again.

In Committee, the Minister outlined the steps being taken to address the low- probability, but high-risk, scenario of a pollution incident. My noble friend Lord Shipley referred to the Minister’s response, which was that the Government and the industry are looking to put a scheme in place, and I am sure that we all look forward to hearing further news about that in the Minister’s remarks this afternoon.

We need tight regulation of fracking by the Environment Agency, the HSE and local planning authorities, but of all the impacts of fracking, not just the impacts resulting from increased pressure on water supplies or their potential contamination. In Committee, the Minister confirmed that the regulatory framework will be,

“reviewed and refined as appropriate as we move towards the production phase”.—[

Official Report

, 11/2/14; col. 543.]

We need a holistic view of the environmental impacts of fracking, not just of its impacts on water supplies, important though they are, and I therefore cannot support this amendment. I certainly hope the Minister will give assurances that there will be full parliamentary scrutiny of any proposed changes to the existing regulatory framework for fracking.

The Parliamentary Under-Secretary of State, Department for Environment, Food and Rural Affairs (Lord De Mauley) (Con): My Lords, Amendment 88ZA, which was moved by the noble Lord, Lord Whitty, would require onshore oil and gas operators to provide financial security when applying for an environmental permit so that funds would be available to deal with any water pollution incidents caused by the operator. The amendment relates to both the conventional and so-called unconventional, or alternative, oil and gas sectors. It would address any pollution that an operator might cause to the water environment but not, I stress, any other damage that

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might be caused by their activities. The same amendment was raised in Committee by the noble Lord, Lord Whitty, and was withdrawn in the light of information that I provided on our plans to address any wider environmental risks by developing a scheme to ensure that the polluter will be liable in the event of a pollution incident and that there will be sufficient funds available to cover the costs.

I reiterate that the proposed amendment would also apply to, and have implications for, our well established UK conventional onshore oil and gas industry, an industry which, over many years, has maintained a good record of environmental responsibility and competence that has enabled it to co-exist with, and provide employment for, many. Our existing regulatory framework and the application of good operational practice have served us well to prevent pollution from onshore oil and gas activities and to tackle any problems that emerge in an appropriate way. These same controls will provide the basis for the regulatory framework for any new developments in the oil and gas sector to ensure that the environment continues to be appropriately protected. I shall come back to that in a moment.

As part of the licensing process, and prior to awarding a licence, the Department of Energy and Climate Change assesses whether a company has sufficient funding for its planned operations. DECC also checks at the drilling and, where relevant, production stage that the company has appropriate insurance. Similar financial competence checks are carried out by the Environment Agency as part of the permitting process. In this way, we ensure that the companies have the necessary resources needed to back their operations.

Our regulatory framework is underpinned by a robust range of enforcement powers, which are available to the Environment Agency. This includes powers under the Environmental Damage (Prevention and Remediation) Regulations 2009, which in the event of serious damage to surface waters or ground-water will enable it to require the polluter to pay to clear up the pollution. Ultimately, if a significant environmental risk becomes apparent, the Environment Agency has the authority to stop the activity. These powers apply to a wide range of activities undertaken by different industries, so I do not think that it would be justified to create any specific provisions for the onshore oil and gas industry.

However, the Government are very aware of the public’s concerns about the capacity of companies exploring for shale gas to address any liabilities that may arise. As I mentioned in Committee, this issue is being looked at as part of a wider review. DECC and the shale gas industry are working together to put in place a robust scheme that would cover environmental liabilities, even if the relevant operator is no longer in business. They are discussing with leading insurers to build expertise and capacity in the insurance market. The aim is to facilitate the development of products appropriate for shale gas and similar operations, which, in turn, could facilitate the development of an industry-wide scheme. As I explained, these discussions will take time, as we need to ensure that we get this right first time.

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The amendment proposed by the noble Lord, Lord Whitty, is quite specific, but perhaps I could just talk more broadly for a moment. As I have just mentioned, and noble Lords have mentioned in their speeches, there are understandable concerns about this whole area of exploration and production. The noble Lord, Lord Cameron, referred to the need to bring the public with us—and he is absolutely right. The Government are clear that we must take all appropriate measures to ensure human safety and protection of the environment. The United Kingdom has more than 50 years’ experience of regulating the onshore oil and gas industry, and we have a robust regulatory system in place to ensure that operations are carried out to high standards of safety and environmental protection.

I can assure noble Lords that the Government will allow production of shale gas to proceed only where it can be done without compromising human health or the environment. We are therefore undertaking a very careful assessment of our existing policy and regulatory framework to ensure that it is fit for purpose, as we move towards the production phase. It is not just about fracking—a process used to extract oil and gas from rock—which has been safely employed in the United Kingdom and elsewhere for many years.

Any changes to regulations that we believe are necessary following this consideration would of course be subject to parliamentary scrutiny. Parliament is also using its other mechanisms of scrutiny, including the significant inquiry into the potential impacts of shale gas being conducted by your Lordships’ Committee on Economic Affairs, which I understand is due to report soon and whose conclusions we will of course consider carefully. A couple of weeks ago, on 17 March, my noble friend Lady Verma spoke for the Government in a short debate on shale gas initiated by my noble friend Lord Borwick. Noble Lords may wish to note also that this debate is occurring simultaneously at EU level, as the noble Lord, Lord Cameron, said, and that debate will reach its own conclusions in due course.

3.30 pm

We are reviewing and refining the regulatory framework as we move towards the production phase. We are looking to do that in the most effective way, without diluting environmental standards. The review will look at all environmental liabilities in relation to shale gas and not just those relating to water. These initiatives, taken together, constitute a sensible and pragmatic approach towards ensuring that environmental liabilities are covered in a proportionate way and allow for a better approach to amending legislation.

To answer a question from the noble Lord, Lord Whitty, if operators want to extract water directly from local water sources for operational purposes and that exceeds 20 cubic metres a day, they would need a water abstraction licence from the Environment Agency. A licence would be granted only if the quantities proposed for abstraction can be taken in a way that does not harm the environment or the interests of other water users. During dry spells and droughts the supply available for fracking operations may be restricted.

My noble friend Lord Shipley asked how fracking wastewater would be disposed of. Flow-back fluid can either be treated and reused on site or taken to a

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permitted wastewater treatment works. Any treated water leaving the wastewater treatment works will have to comply with that works’ environmental permits, which ensure protection of local people and the environment.

The noble Lord also asked whether the Environment Agency has to approve all fracking fluids. All substances used as fracking fluids must be approved for use by the Environment Agency. He asked about the risk of shale gas wells leaking pollution into ground-water. Shale gas wells must be designed, built and operated to standards set in the regulations governed by HSE. Operations are also subject to safety regulation enforced by the HSE and require consent from DECC before drilling or production activities can commence.

I urge the noble Lord to withdraw his amendment in the knowledge that there are effective measures in place already to address the concerns behind his amendment so far as current operations are concerned and that we remain committed to addressing any remaining concerns about longer-term assurance in an appropriate way.

Lord Whitty: I thank the Minister for that detailed reply. I thank the noble Lord, Lord Cameron, for his support and the noble Baroness, Lady Parminter, and the noble Lord, Lord Shipley, for their interventions. I accept that it is slightly odd to put this in the Bill. However, water is a big part of the fracking operation and fracking has a significant effect on water. In all that the Minister said, he did not say when he would come forward with the kind of structures that he promised in the previous debate and which are underlined now.

I recognise that one cannot differentiate in relation to conventional oil and gas operations onshore. We have had plenty of those in this country; we operated onshore oil extraction in Dorset for decades. One cannot differentiate in terms of the relative regulations.

I accept, too, that the issue is wider than that of water. However, somewhere we need to see the Government make progress in creating the arrangements that the Minister has now twice referred to—namely, an obligation to ensure financial resilience and possibly the creation of separate funds to ensure that they could meet the effects of clean-up. I am sure that the Minister is right that this requires substantial consultation. I certainly agree that ideally we should consider the effect of fracking holistically on all environmental issues across the board, as the noble Baroness, Lady Parminter, said.

I hope the noble Lord is right that we can move fairly rapidly on this as a large number of relatively small-scale operations could arise in a lot of locations. In view of the damage that could be caused, one has to question the ability of the regulatory authorities to enforce standards on all those operations at all times. The care that the operators will exercise will be proportionate to their financial stake in the operation and their bottom line. Therefore, it is important that they make financial provision to cover that before these operations reach scale. That is what this amendment is about. I accept that it is not entirely appropriate, but I think the Government have accepted that something

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needs to be done in this regard and I hope that they will introduce an appropriate measure in legislation or regulation as soon as possible.

In the mean time, I beg leave to withdraw the amendment.

Amendment 88ZA withdrawn.

Clause 51: The Flood Reinsurance Scheme

Amendment 88A

Moved by Baroness Northover

88A: Clause 51, page 108, line 2, leave out “relating to flooding” and insert “arising from a flood”

Baroness Northover (LD): My Lords, in moving government Amendment 88A, I wish to speak also to the rest of the government amendments in the group.

This group of amendments includes the government response to the Delegated Powers Committee on the flood insurance clauses. There are also a few minor changes, including some further transitional measures, to improve the Bill.

The first set of these amendments—Amendment 88D and Amendments 90C to 90G—is in response to the Delegated Powers Committee’s recommendations on the flood insurance measures. The Government take these points very seriously and have tabled amendments to take them into account. This includes using the affirmative resolution procedure for all regulations and placing some of the definitions in the Bill. Following the committee’s report on the amendments, we nevertheless take the view that Clauses 58 and 61 should remain affirmative on the first exercise only. The amendments also provide for some of the definitions to be amended by regulations.

We agree with the committee that the definitions are important and we take its point about defining them in the Bill. However, we remain of the view that the definitions of “flood”, “household premises” and “relevant insurer” are best set out in regulations, which are more flexible, should we need to change them over the lifetime of the measures. We hope that, by defining these terms in regulations that will be subject to the affirmative procedure, we have reassured noble Lords of our intention that Parliament is able to scrutinise these definitions fully in due course.

We thank the committee for recommending that the powers to share information on council tax data are subject to the affirmative procedure. However, to meet the commitment to establish Flood Re in 2015, we need to release the information immediately after Royal Assent, and have therefore decided to address the committee’s concerns by placing the powers in the Bill to ensure that Parliament can scrutinise them now. We hope that noble Lords understand the rationale for this, due to the challenging timetable to deliver Flood Re.

Although Amendments 90CA to 90CD provide for rather than mandate the release of council tax data in the Bill, I should make it clear that the Government are committed to doing so, and to do so swiftly following Royal Assent.

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Insurers will be required to have in place appropriate but proportionate security measures for the protection of the data disclosed pursuant to this clause. As much of the data to be disclosed at this stage are already in the public domain, it has been agreed that the controls are sufficiently robust for additional criminal sanctions not to be required. However, the amendment also allows for the application of a criminal sanction at a later stage, should the Government need to regulate for the release of additional information. It is right that we have the powers to protect the release of further information in future, but the criminal sanction is not automatic and we will consider whether one is necessary, following consultation.

On Amendment 90A on Flood Re’s reserves, we have previously discussed amendments to the rules surrounding the scheme’s reserves, and will come on to discuss reserves later in this debate. Having consulted further, and to ensure that this power in Clause 53 cannot compromise the sound operation of Flood Re and its orderly management, we are tabling this small change to make clear that the scheme administrator’s consent is sought before making regulations in this area. This consent means that the scheme administrator is able to object to any prudentially unsound proposals, as well as make representations as to the retention of some or all of the reserve. Consequently, there is no longer a need for a requirement to consult the Prudential Regulation Authority as well. I reassure noble Lords that both the Prudential Regulation Authority and the Financial Conduct Authority will continue to be closely consulted on this and all other regulations made in relation to the Flood Re scheme.

Amendment 88B covers the eligibility threshold and is intended to ensure that the legislation properly reflects the operation of the Flood Re scheme, and the way the insurance industry operates.

Amendment 90T addresses the risk that secondary legislation made at the end of the life of Flood Re could be seen as hybrid. We have every intention of carrying out a full consultation before making that secondary legislation to ensure that any private interests are properly considered.

Amendment 90L is intended to ensure that employment contracts within the scheme are transferrable, where they otherwise might not be. I reassure noble Lords that this amendment is not intended to enable the transfer of reserves required to be retained for prudential regulatory purposes.

In addition, the Government have also tabled a small set of minor and technical amendments to the Bill. We have also corrected an error in Schedule 3 to the Flood and Water Management Act 2010 to ensure that unused bond funds, called in by a SuDS approving body, can be returned to the right person.

Finally, Amendments 91B to 91D provide the Secretary of State with powers to introduce provisions to allow Ofwat to revoke existing water supply licences as part of the transition to the new water supply licensing regime. The power provides flexibility for Ofwat to allow existing licences to continue until new licences are available or until they are revoked on a specified day.

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Amendment 91B enables the licence modification powers to work in such circumstances. The order can provide for more detailed arrangements to be set out in a scheme produced by Ofwat, subject to the requirements of the Secretary of State’s order. The order also provides for compensation to be payable to the holders of revoked licences. The measure of compensation may depend on various factors, including, for example, whether the licence holder qualifies to hold a new licence in the reformed water supply market.

The amendments also make transitional provisions for existing sewerage arrangements with incumbents that become licensable arrangements under the new sewerage licence. Compensation is payable if it is no longer possible for some sewerage arrangements to continue because a licence is required. Again, the qualification of the operator for a licence would be a relevant factor. Amendment 91C corrects a small error in paragraph 6 of the schedule. I hope that noble Lords will be happy to support these amendments.

Earl Cathcart (Con): My Lords, this is the first time that I have spoken on this Bill on Report, so I should declare that I live in a band H property on my farm in Norfolk, I have a bore hole and I have spent about 30 years working and underwriting in the insurance industry. I am happy with these government amendments, but will the Minister clarify government Amendment 90L to Clause 70? I am afraid that I did not quite catch the Minister’s assurance about capital, so I am asking her to say it again, please. The current wording is far from ideal, in that it could potentially raise the possibility that Ministers could access Flood Re’s funds when the scheme is wound up, irrespective of their being needed for, for example, meeting regulatory run-off requirements.

I understand that Defra has said that an override to access Flood Re reserves is not the intention of the amendment to Clause 70. However, the concern is that in 20 or 25 years it could easily be interpreted as an opportunity to grab funds from Flood Re. Will the Minister make clear that the amendment is not intended to apply to Flood Re’s reserves or capital? That would be most useful.

3.45 pm

Lord Whitty: My Lords, I, too, do not object to these amendments and I congratulate the Minister on getting through them in six minutes flat. Many of them will be substantial improvements to the Bill, particularly the ones which iron out a few things in relation to Ofwat in terms of the changing competitive regime. I very much welcome that. However, the noble Baroness will be aware that, in its second riposte, the Delegated Powers Committee said that it is not entirely satisfied with the provision for only the first instance of definition being by affirmative regulation. The Government will have to have an answer to that. In general, it is sensible for Ministers to swallow hard and accept all the recommendations of the Delegated Powers Committee, otherwise it ends in trouble down the line.

The only other thing I would ask about is Amendment 90T, which relates to hybridity. I do not really want to have a debate on hybridity now, but the Delegated

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Powers Committee raised the issue, and I am not sure that the Government’s response fully meets the point, because it effectively says that, whether it is hybrid or not, we are going to ignore it. I am not sure that is a satisfactory response, but if the Delegated Powers Committee will buy it, I will not object. Otherwise, we welcome these amendments.

The Earl of Lytton (CB): My Lords, this is the first time that I have spoken at this stage of the Bill and I, too, must declare that I live in a band H property. However, I also have a professional interest in parts of the Bill by virtue of being a chartered surveyor. I certainly welcome the proposals for the affirmative resolution procedures outlined by the noble Baroness and agree that the disclosure of council tax information is necessary. However, I have one query, which relates to Amendment 90CD. Could the noble Baroness confirm that the normal process of disclosure will generally relate to the identity of the property and its council tax band rather than the identity of the chargepayer, the latter being something that is normally held by the billing authority? If I have missed some point about the disclosure, and where the identity of the individual can be discovered, perhaps she would put me out of my misery.

Baroness Northover: I hope I can put everybody out of their misery, which probably reflects the fact that I rattled through this in six minutes. First, I will take up the points made by my noble friend Lord Cathcart. We will come to a further discussion of reserves later, in which I am sure he will be interested. I make it clear that Amendment 90L is intended to ensure that employment contracts within the scheme are transferable, where otherwise they might not be. I reassure him that the amendment that he mentioned is not intended to enable the transfer of reserves that are required to be retained for prudential regulatory purposes. I hope that reassures the noble Earl on that particular point. I probably just went too fast on that one.

I am very grateful to the noble Lord, Lord Whitty, for his general support for these amendments. In response to the points he raised, I recognise fully, as a member of the Government, that the best thing to do when the Delegated Powers Committee comes forward with recommendations is to agree. However, he will also be aware that there are times when the affirmative procedure is used in the first instance and not thereafter because it is not anticipated that there will be significant changes later. I am sure that the noble Lord, Lord Whitty, will be very familiar with that pattern.

The noble Lord asked about hybridity. I will just go back to my original comments on that and then come to what I have been handed by way of inspiration. Amendment 90T addresses the risks that secondary legislation made at the end of the life of Flood Re could be seen as hybrid. The noble Lord thought that we had indicated in some way that we were just sweeping that aside—at least, I understood him to indicate that. I repeat that at the end of Flood Re we have every intention of carrying out a full consultation before making secondary legislation to ensure that any private interests are properly considered. I hope that the noble Lord is reassured on that point.

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Perhaps I may write to the noble Earl, Lord Lytton, with further details on the point that he raised. I am sure that we can reassure him.

I am just checking to see whether I have covered everything. I trust that I have and am sure that noble Lords will make it very clear if I have not. I hope that, on that basis, they will accept the government amendments that I laid out at such speed.

Amendment 88A agreed.

Amendments 88B to 88D

Moved by Baroness Northover

88B: Clause 51, page 108, line 8, leave out subsections (3) to (5) and insert—

“(3) The Secretary of State may by regulations make provision as to levels of reinsurance premiums payable by relevant insurers under the FR Scheme, and may make different provision for different purposes.”

88C: Clause 51, page 108, line 17, leave out from “different” to end of line 18 and insert “purposes by reference to the value of the household premises insured.”

88D: Clause 51, page 108, line 18, at end insert—

“( ) In this section “flood insurance” means insurance in respect of risks arising from a flood.”

Amendments 88B to 88D agreed.

Amendment 89

Moved by The Earl of Lytton

89: Clause 51, page 108, line 18, at end insert—

“(6A) Regulations under subsection (5) shall provide that every policy which is subject to a levy for the purposes of the Flood Reinsurance Scheme shall be covered by the Flood Reinsurance Scheme.”

The Earl of Lytton: My Lords, I do not know whether I can rattle through this in quite such short a time as six minutes but I will do my best. I start by expressing appreciation to the many professionals and industry bodies who have been extremely open and frank with me about their views and insights. I am also very grateful to the Minister and his department for the correspondence and guidance that they have generated.

My starting point is that Flood Re is necessary and desirable, and I hope that nothing I say will be interpreted as damaging that. The objective of Amendment 89 is to enshrine fairness in the primary legislation by requiring that the subsequent regulations brought forward by the Secretary of State will ensure that all properties included in the calculation of the levy are eligible for the scheme. I will come back to that later. The objective of Amendment 90 is to ensure proportionality in the primary legislation by requiring that the regulations limit the possibility of unfair loading against any particular council tax band.

First, I shall set these amendments in the context of the wider issues. In Committee, I expressed grave concerns about the Government’s unwitting exposure of risks in the mortgage lending industry, a sector which, I pointed out, is influenced both by the availability

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at reasonable cost of perils insurance, including for flooding, and by its own independent assessment of risk. It is dangerous to assume that the potential for value write-downs is simple scaremongering or that lenders will necessarily just fall behind insurers’ lead. The situation is made worse by the express intention to move to individual risk assessment with insufficiently accurate, readily available or acceptably cheap data, either now or proposed, on which such individual risk could reasonably be assessed. It is clear from what the British Property Federation tells me that there is an issue here, and I feel that the Government could do more about it.

Either one has a risk pool and you do not ask too many detailed questions or there is an individual risk assessment with 1,000 variations. In the latter case, we can of course wait to see what happens to the at-risk properties that lie outside Flood Re. I am told that they can expect a significant hike in insurance premiums and I believe that we have started to see that happen. Of course, we do not know what the “at real risk” numbers are because Defra has not carried out an audit. The Environment Agency has different figures depending on whether coastal storm surge, fluvial, surface run-off, sewer surcharge or groundwater rise is involved, as well as indirect vulnerabilities such as property damage following disruption to services and access. Defra seems to select what suits its purposes, and in a sense I do not blame it for that. However, I am fairly unhappy about the whole of this part of the Bill, in particular, its evidence base and its unintended consequences, particularly when confidence in Flood Re is so vital, as I think it is.

I turn to some of the detail behind the amendments. The statement of principles said that it would ensure that home owners and small businesses would be protected. That was the public expectation. The Government claim that Flood Re is designed to cover the same categories of policyholder, but that is not how it appears. Leaving small and medium-sized enterprises apart, the Government need to explain and justify the exclusion of many homes and their rather convoluted way of defining them. It is that which I wish to address in particular.

The Defra note last week on the scope of Flood Re is evidence of the difficulties. The criteria are listed on page 2. Of the five criteria listed, three simply pose additional questions. As regards whether properties are insured in the name of an individual or in trust for an individual, how would one know? Whether properties are used for residential purposes may be a hotly debated matter given the number of people who work from home. The test of occupancy by the policyholder or immediate family also worries me. Under policies that are in scope, we note that contents insurance in the main is included but that stands in stark contrast to the insurance of the building fabric, which is on a different template. A lot of people with composite policies, especially some first-time buyers, might struggle to know the difference between the two. Buildings insurance policies in scope are covered on page 3 and it seems to me that things get into further complexity. The categorisation of owner-occupied homes provokes a raft of subsidiary questions. Who is insured? Who

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occupies? What are the family connections? For owner-occupied leaseholds you have to know whether the leaseholder is in actual occupation and what the insurance covenants state. These could be in a superior leasehold document or have just come about by subsequent lease variation or custom. The policy must cover three flats or fewer and the freeholder—in particular not being a head lessee I would ask your Lordships to note—must live in one of them. We have questions of numbers of units covered in the policy not being the same as the number of homes in the building and questions of how one might determine that. There is also the identity of persons, their relationships and the actual place of abode. Quite why the classification of homeowner hinges on the residence of the freeholder escapes me. I do not think that it will be seen as a fair test for this purpose. Once the presence of leasehold is established, the criteria create all sorts of further additional interests, but I will leave the noble Lords, Lord Grantchester and Lord Whitty, to expand on that.

When a top-floor maisonette gets split and combined with the roof space as an extra unit to make four, what then? Why should that change the status of all the others? Are leaseholders who share the freehold via a company formed for the purpose to be included? If so, how would one distinguish that from a next-door investment property? I do not accept the justification for the blanket exclusion of mixed residential and commercial blocks, in which I also include the one, two or three self-contained flats above the shop. I also feel that including these is not in any way insurmountable.

I turn now to the exclusion of council tax band H and I properties. I note that the Association of British Insurers’ briefing says that this was a ministerial decision. I simply point out that many people occupy modest London homes in band H while near-identical properties in the regions may be in much lower bands. The disparity has arisen because of the economic imbalance that has grown up over time. But, as the brokers Hiscox put to me, what conceivable difference would it make to the actuarial calculations of Flood Re to include them, especially if the maximum claim that could be made for higher-value properties was capped at some figure? What effects are anticipated from excluding large numbers of inner London homes? Further, since when has the registered address of a business been anything whatever to do with the place where the business is conducted or, for that matter, with the predominant use of the dwelling where it may happen to be registered?

I turn to the exclusion of properties built after 1 January 2009 which none the less, as with the other exclusions, form a component in the levy. In Committee, we debated Planning Policy Statement 25: Development and Flood Risk. That was published in March 2010. I am not clear why the earlier retroactive date was chosen, but I suggest that the process was less than open and transparent. Purchasers of homes in that category would have been unaware that they might have been excluded and will consider themselves, I suspect, unfairly penalised. Based on 2% of the estimate of completions since the end of 2008, there are probably about 30,000 of these properties as a rough estimate, 2% of which are at significant risk. But they should

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also be at particularly low risk in actuarial terms if local planning authorities, developers and planning inspectors have adhered to the principles of PPS 25. It would be much more appropriate to set a cut-off date of, say, Royal Assent.

4 pm

The reason that a reinsurance pool has credibility and cohesion is that those at little risk have the sense of needing protection in case a peril might none the less befall them, but the likely consumer reaction to being statutorily excluded and denied any benefit from the scheme and yet obliged to contribute vicariously to it ought to be a matter for sober reflection.

Defra takes four pages to explain the latest government position on all this, but it is overcomplicated and I do not believe that it will work. Many industry players have also expressed their doubts to me about its deliverability. Furthermore, it needlessly reduces the insurance pool for no ostensible advantage. I am sure noble Lords will all know that the principle is, within reason, the larger the pool the better the stability of the scheme. The test that was suggested to me by Hiscox is that if it is a domestic property in a council tax band and built before a specified date, it should be within the Flood Re scheme. If it is not; it is out. Mixed uses can be apportioned. There is no fuss and no bother. It is easy to verify. It is a radical simplification of the entire process.

I do not believe that there would be any adverse affect on the flood risk pool profile. It would be as fair as it gets. The Government need to think further and actively engage a wider range of professional and financial views. That is all I ask. I beg to move.

Lord Cameron of Dillington: My Lords, I support the amendment. I do not have quite as many questions as the noble Earl, Lord Lytton, but I have a similar sense of the injustice and unfairness that are implicit within the Flood Re scheme.

I am not quite sure what the opposite of taking a sledgehammer to crack a nut is, but perhaps it is taking a bucket to stop a flood or maybe it is using the current Flood Re scheme to deal with the domestic flood insurance problems and then excluding more than half of all UK households. I know that there is then the added problem of SMEs, but I totally accept that for the present the scheme is designed to tackle the domestic marketplace.

In my view, the proposed scheme is so hedged about with exemptions that it fails to get to the heart of the domestic flood insurance problem. Even without SMEs, most buildings will not be covered by the scheme. Exclusions include: nearly all leasehold properties; the entire private rented sector; housing association schemes, whether shared equity or let—and are these not the very people whom we are trying to protect?—council houses; homes built after 2009; and properties in council tax band H. Some 60% of all domestic properties are specifically excluded. Flood Re, in this case, is not fit for purpose. It would have been so much more simple, fair, just and equitable to have included all of the above and dealt with the problem of excess demand on funds by either capping individual payouts

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or adjusting the level of premium at which Flood Re cuts in. It seems unimaginative to me to exclude 60% of all properties as a way of mitigating the risk.

Incidentally, the average household premium is just under £200, so the 2.2% levy amounts to an average of £4.40, not the £10.50 being bandied about. When I met with the ABI, it seemed to have no satisfactory explanation for the difference in these figures, so I have no idea where the £10.50 came from. The reason I mention this is that, if a £10.50 premium is considered acceptable, and the real figure is actually much less, then maybe adjusting the amount of supplementary levy on the premium could also be a way of mitigating risk in the early years of Flood Re. Just to exclude 60% of the properties surely undermines the whole purpose of the scheme.

Turning to the various unjustifiable domestic exclusions, I will deal with them one by one, starting with properties in council tax band H. First, as confirmed by ABI, the inclusion of such properties would not in any way raise the cost of the scheme. If, as suggested by Hiscox, a cap of, say, £160,000 were put on any one payout from the scheme, their inclusion would not increase by one jot the risk of failure of the Flood Re scheme. Noble Lords should bear in mind that those who are being excluded are not paying the £4.40 supplementary levy or even the £10.50 towards the scheme: they will be paying nearer to £50, £60 or £70, because of the value of their house, towards a scheme that specifically excludes them. They will not all be rich; many of them will be elderly, cash poor and vulnerable.

I of course understand the politics at work here; as I said, this exclusion is an entirely political decision. If they cannot be included in the scheme, however—which, I agree, seems unlikely at this stage—I would strongly support the National Flood Forum’s proposal that they should be helped with any mitigation measures possible, either through locally targeted schemes or from the Flood Re pot once it has been built up, as in Amendment 90ZA, put forward by my noble friend Lord Krebs and the noble Baroness, Lady Parminter. They should not be totally abandoned when they are contributing so much towards the scheme itself.

Turning to post-2009 properties, apart from people in this House and some people involved in the insurance industry, I have yet to find a single person in real life who knows anything about this 2009 cut-off and the effect it may have on their insurance in 2015. Included within that group of innocents are two people who actually work in the insurance industry. I know that some of your Lordships are saying, “Look, we have to make an example here. We must stop developers building on the flood-plains and the only way to do it is to make these properties uninsurable against flood risk”. To me, that misses the point. For a start, society—that is you, me and the local planning authority—gave permission for these houses to be built. Currently, the Government are actually helping these people to buy these houses through their Help to Buy scheme. The Environment Agency only comments on 6.6% of all applications; perhaps it should have some responsibility. My point is that, if we do not want houses built, we have to stop them at source and not just take it out on the poor, unfortunate souls who—probably totally

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unknowingly—end up living in these properties either as owners or, worse still, as tenants, who of course are going to be doubly excluded.

Furthermore, to have a blanket exclusion on all post-2009 properties also misses the point. We are not just talking here about houses on the designated flood-plain; we are talking about all houses that represent an insurance risk. We are talking about houses that probably started flooding since 2009 for a variety of reasons. There are more and more examples now of houses flooding because of rising ground-water, even on hillsides. There are many examples of houses flooding from surface water, sometimes because of activities upstream—possibly subsequent to 2009—over which the householder had no control; for example, another development that increases the speed of run-off. There are also houses where the weather pattern has changed and, after two floods, the cost of insurance becomes unbearable. Therefore, just to have a blanket exclusion of all properties built after 2009 seems completely unnecessary and grossly unfair. It is well known that there are several examples, most notably in Hull, where there are properties side by side, one of which will be included and the other, because of this rule, will not be—you can almost guarantee that neither of the owners knew their future fate when they chose which one to buy.

Of course, the biggest exclusion is the leasehold and rented sector. I will leave my sense of injustice about those properties until we get to Amendment 89B from the noble Lord, Lord Whitty.

All in all, I realise that it is probably too late to upset the apple cart of this version of Flood Re at this stage. However, many in the insurance industry are pretty unhappy about it, largely because they know that, when the blatant injustices become obvious, they and not the politicians will get the blame. I hope that the scheme works for those lucky 40% who find themselves included, but it would have been much more imaginative to have made the scheme much more inclusive, if not all-inclusive, and to have mitigated the risk in other ways. I hope that when it comes to the various regulations bringing this scheme into effect, some thought will be given to those who have inadvertently found themselves on the wrong side of the legislator’s pen.

Lord Crickhowell (Con): My Lords, we all owe a great debt of gratitude to the noble Earl for moving this amendment and to the noble Lord who just spoke for spelling out in great detail some of the shortcomings that can be identified. I think it is 37 years since I was a director of a firm of Lloyd’s insurance brokers, on the board of a large Lloyd’s underwriting agency and losing money at Lloyd’s. I do not think I must declare an interest for that, though, like others, I must declare one as living in a band H property.

I have been very uncomfortable about this scheme, based not so much on the residue of knowledge long forgotten as on the political outlay that I see arising when the whole scheme does not produce the results that most people expect. I told my noble friend Lord de Mauley on Thursday morning, when we happened to meet, that I had just received an e-mail from the chief executive of Hiscox. My noble friend asked me

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to send a copy of that to him—although he was copied into it, apparently he had not seen it. I said I would come back to this issue because the Hiscox e-mail raised a number of very significant issues that must be addressed. I do not have to go through them all in detail because we had very good summaries from both the noble Earl and the noble Lord, Lord Cameron.

Hiscox points out that the scheme, though clearly desirable in principle, will not solve the problem of unaffordable flood insurance that it was created to address. Nor does it take into account the changing nature of flood. Hiscox points out that of the 885,000 homes in high-risk areas more than 350,000—3.8% of the total housing stock—will be excluded. While some of those will be commercially owned properties able to buy commercial insurance, a proportion will be private buy-to-let properties. What is more, Hiscox says it is likely that this underestimates the scale of the problem. The noble Earl pointed out the uncertainties about the numbers. Hiscox indicates that 80% of its claims came from homes that it did not consider to be at flood risk. It is not just homes sitting in obvious flood plains, of the sort with which I had to deal when chairman of the National Rivers Authority. No one is more indignant about some of the planning decisions that have been taken there than I am.

The whole thing has been arrived at by negotiation between the Government and the Association of British Insurers. No doubt we will be told that this is the best deal that can be done at present. I am not sure we should be satisfied with that. Clearly quite a number of active insurers do not believe it is the best possible scheme and, for the reasons well elaborated by the noble Lord, Lord Cameron, it does not appear fair.

4.15 pm

The noble Lord drew attention to the contribution that the average UK home owner is likely to pay—approximately £3.30 to £4.40 per week on the average home insurance premiums—but band H and I properties will pay 15 to 20 times the average, and they are not going to get covered at all. Together with new-build homes, they will pay 8% of the £180 million to fund the scheme even though they are to be actively excluded from the protection that the scheme offers. So one asks how those faults can be remedied; Hiscox actually indicates how. Again, some of the answers were provided by the noble Lord, Lord Cameron. Flood Re could be expanded to cover an additional 10 million homes in Hiscox’s view. This would increase the levy to Flood Re by an estimated £100 million. The progressive nature of Flood Re would mean that the better-off would still pay more. In addition, opposing a cap of £160,000 on the amount insurers can recoup from Flood Re would ensure that the most valuable properties did not impose excessive costs on the scheme.

Therefore, we are entitled to say that more needs to be done. I come back to the point that really prompts my concern. It is not that we should not have a scheme like this, or that perhaps negotiations do not have to continue, but that when the floods do arise there will be fury—not just anger—among those who thought that they were covered and find that they are not, and those who have contributed to a scheme for which

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they receive no benefit, and which does not apparently even then cover all those who clearly should be covered. Therefore I am very concerned about this.

Because we are dealing with an ongoing negotiation, my noble friend might say that this is the best deal we have been able to get at present. However, it should not be left there. If it is simply a negotiation, we should have an understanding and a clear statement from the Government because, as the noble Lord, Lord Cameron, pointed out, they have laid out some of the basic conditions, not the insurers—the Government have laid down some of the most startling exclusions. But this is not a matter that holds here. Every effort surely must be made to improve a flawed scheme that will cause anger to be felt not just by the insurance industry but by the Government of the day.

These things often happen quicker that we can imagine. Just because we have had one very bad winter with a lot of floods, does not mean it will not happen again quite quickly. It was always my experience that when we had a major drought, it was immediately followed by a flood when I had responsibility for dealing with it. Whenever I was told that there was a one in 100-year risk, the flood happened the following year and probably twice in the next two or three years, so this may happen quite quickly. In that case it may be my noble friend Lord De Mauley who receives the flak and the present Government, or it may be the successor Government in the very near future. Therefore, I hope we can receive some reassurance that this is not the end of the story, and that every effort will be made to improve on the negotiated scheme that we have before us.

Lord Campbell-Savours (Lab): My Lords, as in Committee, I need to declare an interest in that I have a leasehold interest, with my wife, in a band G home on the Thames built on the flood plain. My flat is not threatened by flooding, has never been flooded and can never flood because it is on the second floor, and the whole of the south of England would have to be flooded before we were. Nevertheless, I have to report that a car park area that serves our block of flats was recently subjected to some flooding, and it is with that in mind that I feel that I should restrict my comments today and limit what I have to say, and I will not be voting on the issue.

All I want to do today, without commenting on the issue in the light of what has happened, is to read a letter which has been sent to my noble friend Lord Whitty, the noble Earl, Lord Lytton, the noble Baroness, Lady Bakewell of Hardington Mandeville, Mr Owen Paterson MP and Ms Anne McIntosh MP, who I understand is the chairman of the Select Committee in the House of Commons. I simply want to read the letter, which the Minister has seen, because I think that it should be on the record so that all those in the industry outside can read what it says.

The letter is from a Mrs Beverley Morris of Topcliffe Mill, Topcliffe, Thirsk in North Yorkshire, and she has given me permission to read it. Part of it states:

“If I may give a brief summary of our current situation to further expand upon our current predicament.

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This building, known as Topcliffe Mill (Mews), and built as a water powered corn mill circa 1800, was subject to a ‘once in 100 hundred year’ flood on 26th September 2012. Apartments 1, 2 and 3 on the ground floor were flooded along with 2 communal areas. Three houses in the same location behind the Mill were also flooded”.

Here we are talking about a leasehold property.

“Much of the North East was flooded during this period and Topcliffe Mill was ‘sandwiched’ between the swollen River Swale to the front of the building and the saturation of the fields to the rear.

Topcliffe Mill building insurance policy is purchased by a small management company, Town & County Properties (Wharfedale) Ltd and the premium (pre flood) was just shy of £5,000 for the year 2012, divided between the 12 homes. Post flood and following the claim, the renewal premium was and continues this year at £23,750 divided between the 12 homes, an increase of almost 500% per home. My husband and I are now paying £2,000 per year for a Band C, 4th floor”—

fourth-floor—

“domestic flat that we have made our home for the past 10 years. As we are not in a position to pay this amount up front and on demand, arrangements have been made to pay by instalment, which in itself incurs extra charges.

The ABI are offering assurances that ‘there is no systematic problem with freeholders being able to obtain insurance for their leasehold properties’. Our management company, have indeed secured building insurance, as I understand they are legally required to do, but at what price? The insurance companies, who know this, have our management company and us over a barrel it seems.

T & C Properties Ltd had their agent, J M Glendinning of Guisley in Leeds thoroughly search the insurance market for a better deal and it was to no avail. As owners, we took on the challenge of checking out the markets ourselves and if required we can supply documentary evidence of refusals, although many refused point bank on the telephone to even consider it. Our management company and their agents are also prepared to lend their testament to the situation we find ourselves in. I am at a loss to see how this scenario fits with the ABI’s explanation either now or in the future if leaseholders are excluded.

Referring again to the Food and Rural Affairs Committee meeting 11th March 2014, Ms McIntosh discussed with Aiden Kerr the issue of SME exclusion from Flood Re. He gave his explanation stating that Flood Re ‘is limited to households’. As we are not an SME but a collection of households, it begs the question, does being a leasehold define us as not a household?

During the session 11 February 2014 you drew attention to the services of the Financial Ombudsman Service. We, however, have no recourse to them to make any complaint into the risk assessment that led to our mighty high renewal premium and nor will we in the future, because the policy is not in the name of the domestic leaseholder. Would the management company complain on our behalf? Doubtful, since they are not financially affected, transferring all the associated charges directly on to the leaseholder …

The notion that one might sell up and move on, being unable to meet the management fees is something of a forlorn hope. Everyone is aware of how property values have fallen and the North East of England is not experiencing the same improvement to values as the south. Add to this a history of flood— albeit the first in 100 years. The financial security of our household stands to be jeopardised, in terms of our ability to meet mortgage payments due to over stretched resources and/or the ability to secure reasonable flood insurance.

The opportunity to afford us the same level of assistance being offered to freeholders is likely to slip by if we are not included in the Flood Re scheme. Given that the decision to have a cap in place in the medium term has been taken, I feel it only fair and just that leaseholder homes are included”.

As I said, my position has changed since the last time I debated these matters, but that testimony is from someone who is directly affected, and a five-times

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premium increase in the north of England on a band C flat on the fourth floor of a block of flats is something that Ministers should seriously think about. Indeed, I would have thought that Parliament would have addressed that problem.

Baroness Parminter: My Lords, the aim of Flood Re is to support people at the highest risk of flooding who would struggle to find affordable insurance on the open market. The way in which it is funded, as the noble Earl, Lord Lytton, has reminded us, is via a levy to provide a funding pool to use for the purposes of the scheme. Many contributors are likely to be at a low or no risk of flooding, but this approach spreads the risks across a large population to make it more affordable.

The question that we are trying to address here is whether it is fair to include specifically band H council-tax and post-2009-built homes—I am not going to address leaseholders because, as other noble Lords have mentioned, we are going to come back to this with an amendment from the noble Lords, Lord Whitty and Lord Grantchester. There will be a small number of asset-rich but income-poor in band H houses. In Committee in this House, the Minister confirmed that 0.5% of such households are in the five lowest-income deciles, or 45 properties in flood risk areas.

A letter to the Committee in the other place from the Parliamentary Under-Secretary Dan Rogerson on 10 December 2013 confirmed that the cost to add band H houses to the scheme would be between about £1.4 million to £5.4 million, funded by an increase of up to 3% in the levy paid by all householders. Given that small number of asset-rich but income-poor, and the high cost to add these to the scheme, I do not support their inclusion in Flood Re—indeed, it would be a regressive measure—but I would certainly hope that lead local flood authorities will target some of their funding to address the impacts on vulnerable elderly people in their areas. Targeted mitigation of the impacts of this exclusion would be a far better approach and, as the noble Lord, Lord Campbell-Savours, said, is supported by the National Flood Forum.

Houses built post-2009 were excluded by the previous Administration from the statement of principles, which preceded Flood Re—the reason being that, with strong planning policies in place, such homes should have been properly assessed for flood risk. Equally, the date as set was important to avoid incentivising development in areas of flood risk. I accept that that is not perfect, but the exclusion of post-2009 from the band H properties was widely consulted on by the Government last year in advance of drawing up these proposals and was broadly supported. Hundreds of thousands of homes will benefit from Flood Re and, frankly, we need to get on with it. I am satisfied that this approach is fair and targeted at those most in need, and with regret I therefore will not be supporting the amendment.

4.30 pm

Lord Moynihan (Con): My Lords, I declare an interest as an owner of a band H property. Many noble Lords have spoken on this amendment at this stage. The noble Lord, Lord Campbell-Savours, and I spoke to a similar one in Committee, and I am pleased

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that the House has returned to it. I have one question for the Minister that is a matter of principle. While the rationale for the exclusions from band H properties is principally that some band H owners have higher incomes than others—that is not a proven principle but it nevertheless continues to be argued by the Government—does the Minister accept the view that the Flood Re scheme should follow the principle that those who contribute to this government scheme are afforded its protection?

Lord Whitty: My Lords, we are grateful to the noble Earl for tabling this amendment, and particularly for the way in which he outlined the dilemmas of this proposition. I think we all have a problem here. I hope that I do not need to make it clear that we on this side strongly support the basic concept of Flood Re and the reassurance that it will give to a lot of people who are currently worried about their future cover.

We have to recognise that the Government are not entirely on a free position on this; indeed, I congratulated the Government—that is quite rare for me—not long ago on reaching an agreement with the ABI, which I know is an incredibly difficult negotiator. Therefore, I do not think that any of us want to unnecessarily unravel the arithmetic that lies behind the Flood Re proposition as it now is. However, the wide-ranging nature of the noble Earl’s amendment means that we would be unravelling it quite substantially.

On the other hand, as noble Lords have made clear, this is not entirely a matter for the insurance industry. The structure of the project is an agreement between insurance companies but it has to be backed by Parliament and it therefore has a statutory base. Parliament has to be concerned about fairness, equity and proportionality. We therefore have to query whether the exclusion of certain properties, and such a large number of them in aggregate, is fair and equitable.

To some extent, I go along the same lines as the noble Baroness, Lady Parminter: there are different arguments relating to the different categories. Some exclusions were in the previous statement of principle and are therefore in a changed position as a direct result of the demarcation of Flood Re. Small businesses were covered by the previous arrangements, as were tenants in leasehold premises—although there have been some concessions of late, which I will come on to in the next amendment—and band H properties. The exclusion of post-2009 properties is not a new position; it was the position under the old scheme.

I shall comment on my view on each of those. First, I accept that small businesses have a different way of meeting their insurance requirements. I also accept, on the other hand, that many small businesses, boarding houses, shops and small premises were seriously affected by those floods and, under their understanding of the previous settlement, would probably expect to be covered by the replacement scheme. It is therefore quite important that we bear in mind the position of small businesses. The insurance industry claims that there is not a market failure in this area, and the Government seem to have accepted that. Maybe we ought to put businesses in a different channel because they are not dealt with in the same way as residential properties under Flood

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Re. The Government should not lose sight of the fact that many small businesses are under serious risk and do not feel well protected by the current situation. I hope, therefore, that the Government will be able to come back to this.

The noble Earl, Lord Lytton, the noble Lords, Lord Cameron and Lord Moynihan, and others referred to band H properties. It is a slightly odd move by the Government to exclude band H—an unusually populist, progressive move, to avoid cross-subsidy from the poor to the rich. It may be a welcome indication of things to come. However, it still leaves a number of people in difficulty. I think that the Government may have to look again at band H, but it does not make a lot of difference to the arithmetic. The number of people who are asset-rich but income-poor is relatively small and, therefore, it could not make a priority social case for re-including band H.

That leaves me with the subject matter of a subsequent group. Almost the whole of the tenanted sector and the private rented sector, even with the Government’s new concessions, are excluded from this. They all regard themselves as residencies, they all have domestic insurance in one form or another and they are all lived in by households and families. I think it is unfortunate that they are excluded. I would give my priority to that and I will come back with a further amendment. As it stands I cannot fully support the broad sweep of the noble Earl’s amendments. Nevertheless I thank him for the debate and the wide range of issues which, one way or another, the Government will have to explain to various sectors of the public.

Lord De Mauley: My Lords, I thank the noble Earl, Lord Lytton, for his Amendments 89 and 90. He raises issues which I know are of concern to people and I thank all noble Lords who have spoken on all sides of the argument.

Amendment 89 to Clause 51 would require that all properties included in the calculation of the levy are eligible for the scheme. It is important to remember that while many homes in the United Kingdom are at some risk of flooding, Flood Re is designed to address an affordability issue for the 1% to 2% at the highest risk of flooding. The levy will provide Flood Re with a funding pool which will be combined with the premium income from those policies which are to be ceded to Flood Re. This will be used for the purposes of the Flood Re scheme, including the purchase of reinsurance and payment of claims. The purpose of having a pool, as is the case for much of our taxation, is that costs are shared by many so that those most in need can benefit. If everybody who paid the Flood Re levy stood to gain, there would be fundamental implications for the required amount of the levy. Alternatively, if the levy was limited to flood-prone households, the pool would not be large enough to have a significant impact on prices and therefore on the affordability of flood insurance.

The insurance industry has been clear that low-risk and no-risk householders have historically subsidised flood insurance for those at a higher risk of flooding and that the move to risk-reflective pricing will over time remove this cross-subsidy from the market. The

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levy simply replicates and formalises this existing cross-subsidy. Indeed, the ABI has assured us that the levy can be introduced without having an impact on bills in general for householders at a low risk and no risk of flooding, for those in band H or for those with properties built after 1 January 2009—that is, those outside the pool.

If I understand the noble Earl’s intention correctly, I think he is particularly concerned to ensure that those properties which are not eligible for the scheme—such as band H properties, properties built after 1 January 2009 and certain leaseholders on commercial policies—either stand to benefit from Flood Re or do not pay the levy. While I understand that cross-subsidising something from which you will receive no benefit might be perceived as unfair, I have explained why there always have to be some net contributors to make a pooling system work, and this includes the overwhelming majority of households at low risk or no risk of flooding. We discussed the rationale for the scope of Flood Re at length in Committee, and I explained that we think that we have got the balance right. The Government’s approach was widely supported in the response to the 2013 consultation. This approach means that those who are most in need of support will receive it to enable a smooth transition to the free market.

The noble Earl commented on the complexity of the scope of Flood Re. The proposed criteria reflect the current situation for purchasing a domestic insurance policy. We are not seeking to change the circumstances under which insurance is purchased through Flood Re. We must remember that Flood Re is designed to help those people at the highest flood risk, which we estimate could be around 500,000 households. I have heard some very fanciful numbers being bandied around, and they all miss this point. I am not saying that the Government are not still listening to the debate. We will monitor the market, as will the ABI, and we will publish our findings. Should the evidence point to specific issues with insurance for particular sectors, we will discuss with the insurance industry what might be possible.

Lord Campbell-Savours: The Minister referred to fanciful figures. The figures I produced on behalf of the lady in Thirsk were real figures showing a five-times increase. She and the 11 other people in flats in the same block are not covered. How can the Minister give an assurance that it will have very little impact on these sorts of people?

Lord De Mauley: My Lords, I was not for a moment suggesting that the lady to whom the noble Lord referred was one of those bandying around that sort of figure—by no means. It is difficult for me to speak about a very specific instance but, if I can, I will come back to that later. I was referring to estimates of the number of households involved. I hope the noble Lord understands that.

Several noble Lords referred to band H properties. In designing Flood Re, we have been very clear that we want to target the benefits where they are most needed while not increasing the costs for those not at flood

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risk. On that basis, we believe that it would not be justified for band H and equivalent properties to be included. The progressive nature of Flood Re received wide support in the public consultation.

Let us be clear that the exclusion of band H properties was set out explicitly as part of the June 2013 memorandum of understanding. This document reflects the needs of both parties and was agreed by the Government and the ABI on behalf of its members. In designing the scheme, the Government and the industry needed to ensure that the pool was viable and affordable. Including band H properties would increase the costs of Flood Re overall, which could result in a reduction in the benefits to households in lower council tax bands or an increase in the levy for all households. We stand by the decision to target support to those in lower council tax bands, as reflected in the memorandum of understanding.

Responding to the points raised about affordability for those in this council tax band, our analysis suggests that relative to other bands, a move to risk-reflective pricing would have limited impact on the affordability of a combined insurance policy for band H households. The noble Lord, Lord Whitty, referred to concerns that those households, which might be asset rich but income poor, would be at risk though this approach. We looked closely at this. According to the 2011 living costs and food survey published by the Office for National Statistics, 85% of those who live in band H properties and hold a combined insurance policy are in the top 30% of earners with 48% in the top 10%. More significantly, perhaps, only 0.5% of such households are in the five lowest income deciles, which translates to roughly 45 properties in flood risk areas. I think my noble friend Lady Parminter mentioned that.

The noble Earl, Lord Lytton, the noble Lord, Lord Whitty, and others referred to small businesses. As I said in Committee, we gave careful thought to the scope of Flood Re scheme and consulted on the proposed figures on the domestic insurance market, which received broad support. The consultation responses did not provide evidence of widespread problems for small businesses with secure and affordable cover, although anecdotal examples of problems in some specific geographical areas were put forward. A government survey of more than 9,000 small businesses in England found that less than 1% of businesses had experienced difficulty getting property insurance in the past year due to the risk of flooding, and that no businesses had been refused insurance cover due to the risk of flooding.

4.45 pm

As my noble friend Lord Cathcart set out so eloquently in Committee, in relation to his own business, business insurance policies tend to be bespoke and are priced to take account of their specific risks. On this basis, we have concluded that the insurance market for small businesses does not appear to have the same systemic issues as the domestic insurance market. Therefore, we remain of the view that overall there is insufficient evidence to justify government intervention in the provision of insurance cover for small businesses. The insurance industry has also recently confirmed that it

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does not expect there to be widespread issues with small and medium-sized enterprises’ access to the insurance market, and that there is plenty of capacity to continue to provide insurance on a competitive basis. But I agree with the noble Lord, Lord Whitty, and I assure noble Lords that we will not lose sight of small businesses.

The noble Earl, Lord Lytton, and the noble Lord, Lord Cameron, among others, referred to properties built after 1 January 2009. That cut-off date recognises that new housing developments should be located to avoid flood risk or, when development in a flood risk area is necessary, it should be designed to be safe, appropriately resilient to flooding and not increase flood risk elsewhere, in line with that national planning policies in place. The date therefore reflects the fact that homes built since then should already be insurable at affordable prices.

As I am sure noble Lords are aware—the noble Lord, Lord Whitty, explained this—when the statement of principle agreement between government and the insurance industry was signed in 2008, it was agreed that there should be a cut-off date, and it was set at 1 January 2009. We are maintaining that under Flood Re, and we consulted widely on it. I must be absolutely clear that there has been no change in policy. The noble Lord, Lord Cameron, in particular, spoke about planning and development in this context. Tens of thousands of planning applications are made every year, including minor applications such as for extensions. The Environment Agency is a statutory consultee to local planning authorities for several types of planning application related to statutory duties on flood risk, protection of land and water quality, waste regulation and fisheries.

The Environment Agency has published standing advice for developers and planning authorities as a tool to help local planning authorities establish the level of environmental risk involved in planning applications. Its role in examining planning applications is only part of the planning process. Right from the start, local plans should ensure that new development is steered to areas at least risk of flooding, wherever possible. Local planning authorities undertake strategic flood risk assessments to develop their understanding of flood risk in their respective areas.

The noble Lord, Lord Cameron, suggested there might be an exclusion of a large number of homes from Flood Re. As I said earlier, only 1% to 2% of properties need to be covered by Flood Re. The Government have been clear on the number of properties built after 2009, and band H properties that would potentially be eligible for Flood Re if the risk-reflective premium for Flood Re met the relevant criteria. It is very difficult to identify the number of leaseholders who are covered by a commercial policy who would potentially be at a high enough level of flood risk otherwise to be eligible for Flood Re, but, based on the best available data, it would be in the low thousands at the very most. The suggestion that tens of millions of homes would be excluded is not right. If the number is supposed to refer to those policies that are out of scope because they are treated as commercial by the industry, I would also disagree that such properties are excluded. They are not covered by Flood Re because

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they form part of a separate commercial insurance portfolio. These policies will not contribute to the levy so, while they are out of scope, it is not because government or the industry has decided wilfully to exclude them but because they are not part of the market that Flood Re is designed to address.

My noble friend Lord Crickhowell put forward his suggestion that Flood Re does not take into account the changing nature of flood. One of the benefits of Flood Re is that it is flexible. Eligibility is based on the insurer’s assessment of risk to a property, which will be reflected in the premium for the flood risk part of the policy. As long as the insurance industry continues to keep pace with changing risk, that will be reflected in the policies eligible for Flood Re.

My noble friend Lord Crickhowell also referred to a suggestion about introducing a cap on claims. That is an interesting suggestion, but it was considered and discounted during the design phase. Flood Re must be as simple as possible to operate if it is to be up and running next year. This type of cap on insurance claims would create an extra level of administrative burden that would add to the complexity of the design of Flood Re. We also have concerns about the impact a cap would have on the ability of customers to protect themselves from the effects of flooding.

The noble Lord, Lord Campbell-Savours, referred to a specific example. I am very sorry to hear about the incident that he referred to. When prices are put up we normally advise that people should shop around, because that nearly always means a better deal. I appreciate that that is difficult for the leasehold sector. We have asked for evidence and I thank the noble Lord for bringing this example to my attention. It might be helpful if we were to have a specific discussion about it, because it may be that we can point people in the right direction. I certainly will ask the ABI, too, to follow up. For these reasons I am going to ask the noble Earl to accept that his Amendment 89 would not be appropriate.

I turn briefly to Amendment 90 to Clause 53. This requires the levy to be set in such a way as to reflect the council tax band of the property concerned. The amount of the levy collected from insurers will be determined according to the insurer’s share of the market. If I have understood the amendment correctly, in order to calculate the levy according to council tax band, Flood Re would need access to detailed information from each insurer on the number of households in each council tax band they currently insure.

Flood Re is designed to be as simple to operate as possible. At present this information would be administratively burdensome to collect and would place impracticalities in the way of Flood Re’s successful operation. It would be costly to force insurers to apportion the levy for each household by council tax band and there would be no way to enforce that. For the reasons I have set out, this would not be workable in practice, so I hope that the noble Earl will be persuaded to withdraw his amendments.

The Earl of Lytton: My Lords, I thank the Minister for that comprehensive reply. I thank all noble Lords from around the House who have spoken. To the

31 Mar 2014 : Column 777

noble Baroness, Lady Parminter, the noble Lord, Lord Whitty, and the Minister, I say straightaway that I have no intention of putting them through the indignity of walking through the opposite Lobby to the one that I may go through. However, the area has been opened up for discussion, as I hoped it would be.

I start from the last point that the Minister made: he wants Flood Re to be as simple as possible. One of the points I was trying to get across is that the way in which the note from Defra sets it out was anything but as simple as possible. Indeed, the question arose as to exactly how one would paint the particular ins and outs by reference to that document. There it is: we have to make the bread with the dough that we have.

I think the Minister misunderstood me slightly, particularly in connection with business band H and post-2000 properties. That was not the main thrust of what I was trying to get across. The main thrust was picked up by the noble Lord, Lord Crickhowell, in the sense that it is that significant proportion of moderate-risk households—if I may term them that—that lie outside flood risk and therefore will be faced with individual risk assessment. However one wishes to divine the numbers in that regard, my take on it is that the number of those who lie just outside Flood Re but face an identifiably material risk is significantly greater than the number in Flood Re who will be protected. Therefore, on that basis, the safety net for the few might be seen as being at the expense of the security that once prevailed for a lot of people in the larger pool under the old statement of principles. I still think that that is an issue.

The Council of Mortgage Lenders refers consistently to its fears about affordability. The noble Lord, Lord Campbell-Savours, referred to a particular example. As he knows, I have a copy of the same letter. If you are on a limited income and having to juggle your finances and your insurance premiums go through the roof, your total repayments will rise to a critical level.

However, it would be wrong for me to go on at length. I will consider carefully what the Minister and all noble Lords have said. I am not sure that I am satisfied. Without wishing to use the somewhat threatening tones of the Terminator, I should say that I may well be back on this issue at subsequent stages of the Bill. However, in the mean time, I beg leave to withdraw the amendment.

Amendment 89 withdrawn.

Amendment 89A

Moved by Lord Grantchester

89A: Clause 51, page 108, line 19, at end insert—

“( ) Prior to making any regulations under subsection (5), the Secretary of State shall require the Committee on Climate Change to provide current and projected estimates of the number of properties that would be eligible for—

(a) inclusion in the Flood Reinsurance Scheme;

(b) the value of levy required under section 53; and

(c) the likelihood of an additional levy or contributions being needed from time to time.

( ) The Secretary of State shall use the advice of the Committee on Climate Change when prescribing a target number under section 58(1).”

31 Mar 2014 : Column 778

Lord Grantchester (Lab): My Lords, as we have seen in recent months, flooding has devastating effects on people’s lives and livelihoods across all spectrums of society. Although Flood Re is a commendable scheme designed to help many who are most vulnerable to flooding, we on this side of the House think that considerable gaps exist which must be addressed.

One of our main concerns is how the scheme will operate within the 25-year span and adapt to weather conditions resulting from climate change. I am sure that noble Lords have seen today’s headlines concerning the IPCC report on climate change, which said that climate change will significantly impact on our weather conditions, especially as regards flooding. The report states:

“Increasing magnitudes of warming increase the likelihood of severe, pervasive, and irreversible impacts”.

We have the opportunity to respond to the threats posed by climate change, not only to ensure that we protect those who are most vulnerable to flooding but to assess how the level of flooding, and the implications of that, will change over time. As my noble friend Lord Whitty stated in Committee, Flood Re cannot be established on a totally static basis. It needs to be adaptable to a dynamic process called weather. The numbers at high risk are likely to increase, and the number of high-risk properties could treble to even more than 1 million. Climate change is a reality although some may have doubts concerning its cause. Nevertheless, it has affected, and will continue to affect, the risk of flooding, and its effects, in the future.

This amendment seeks to ensure that the Secretary of State consults the Committee on Climate Change, and uses its advice, when prescribing a target number of affected properties under Clause 58(1). The Committee on Climate Change’s adaptation sub-committee, which is chaired by my noble friend Lord Krebs, is the key adviser to the Government on the number of properties likely to be at risk of flooding over the timeframes envisaged by the scheme. The Secretary of State should take credible and independent benchmarked advice from the Committee on Climate Change and provide accurate and clear targets when reporting to Parliament. At present, the number of policies eligible for Flood Re is based on the cost of the flood risk component of any policy, which is set by the insurers and will differ based on each insurer’s assessment.

The Government therefore doubt how beneficial the committee’s advice would be, especially on a financial basis. However, it is important to realise that the principle and purpose behind Flood Re is to help to provide affordable insurance for households in flood risk areas which might otherwise find it difficult. This is bound to change over time. It would be nonsensical to say that no advantage could be gained from a sub-committee of the Committee on Climate Change giving its observations on the changes that this scheme may have to face over time as a result of further climate change.

A lot of elements are considered when setting targets under Clause 58(1) but, at the same time, a huge element cannot be fulfilled by the insurance industry alone and one needs the input of appropriate advisers,

31 Mar 2014 : Column 779

notably the Committee on Climate Change. I trust that the whole House can see the value of this amendment. I beg to move.

5 pm

Lord Krebs (CB): My Lords, I thank the noble Lord, Lord Grantchester, for suggesting that my committee acquires an additional job. I do not wish to speak at length about it but simply say that, were we to be asked to carry out the role he outlined, it would fit well with our current statutory duties. We already collect and analyse data on the number of properties at flood risk and the time trends. If we were to carry out this role there would be a couple of provisos. We would need access to the data held by the Government, Flood Re and the wider insurance industry. There might also be some modest resource implications for the work carried out by the committee. With those provisos I certainly think that the committee could very well carry out the job, as outlined by the noble Lord, Lord Grantchester.

The Earl of Lytton:My Lords, I shall make a short contribution on this amendment. Noble Lords will remember that at Second Reading I made the point that there was no equivalent to a Cambridge Econometrics study into the numbers that lie behind this. For that reason alone, there is some merit in this amendment to look at the hard science so that we get away from what has been described to me, by somebody who will remain nameless, as voodoo numbers that have been floating around. The absence of the degree of expertise that is regularly produced by the committee of the noble Lord, Lord Krebs, has needlessly increased doubts and concerns that might otherwise not have been there. Therefore, this is quite a good idea, although I am less clear whether I shall follow the noble Lord if he decides to divide the House on this issue.

Earl Cathcart: My Lords, when a similar amendment was debated in Committee, I took it to be only a probing amendment. Now it has been tabled again today, I am bemused, or perhaps confused, about what the Committee on Climate Change can add to the work already being done. The insurance industry, together with the Government and their agencies, has already assessed the number of properties in known flood-risk areas, particularly the number of properties that might struggle to afford flood insurance in the open market. They have also assessed the level of premiums required by council tax band, and the contribution needed from every householder—£10.50—to ensure that Flood Re has sufficient funds net of reinsurance costs from year 1.

I have no doubt that Flood Re will continually assess and reassess its assumptions, but in any event a five-year review is built into the scheme to assess whether its assumptions still hold true. This five-year review will allow Flood Re, with the agreement of the Government, to make adjustments to the levies and contributions accordingly, and I am quite sure that different areas of flood risk will be added to the pot.

I cannot understand why the noble Lord, Lord Grantchester, is moving this amendment, which will require the Committee on Climate Change to duplicate

31 Mar 2014 : Column 780

the work already done by Flood Re and by the Government and their agencies. Where will the Committee on Climate Change get its information from? The noble Lord, Lord Krebs, says that the committee does some work in this area, but it would need access to data from Flood Re, the insurance industry and the Government and their agencies, such as the Environment Agency. I do not believe that getting the Committee on Climate Change involved will add anything but will be double-handling, expensive and unnecessary.

Lord De Mauley: My Lords, I am grateful to the noble Lord, Lord Grantchester, for his amendment, which would give a formal advisory role to the Committee on Climate Change. I am also grateful to the noble Lord, Lord Krebs, for his offer of help. I absolutely agree with them on the importance of having impartial advice on the latest science, and we of course look to the committee to inform the debate on climate change.

It might be appropriate at this stage to say that I welcome the latest report from the Intergovernmental Panel on Climate Change, which is a valuable addition to the international understanding of climate change impacts and which underlines the need to adapt to changing global weather patterns. Adapting sooner will reduce the future costs of doing so. I should emphasise that, although the IPCC report did not focus on individual countries, it did identify three key risks from climate change for Europe, of which flooding was one and water security another. These findings align well with the United Kingdom’s own Climate Change Risk Assessment, published in 2012, which identified that the biggest challenges that the United Kingdom faces will be flooding and water shortage.

As I explained in Committee, I am not clear what the noble Lord, Lord Grantchester, thinks could be gained by requiring the Committee on Climate Change to assess the data provided by insurers, which will be primarily on the pricing of risk, based on the industry’s own sophisticated catastrophe modelling. The numbers of policies eligible for Flood Re will be based solely on the cost of the flood risk component of any policy, which is set by the insurers based on their assessment of the risk. This assessment will change over time and it would not be possible for the committee to provide any estimates without detailed knowledge of industry pricing models. Similarly, the value of the levy and the likelihood of any additional contribution by insurers is based on a number of financial parameters, such as the cost of reinsurance and the amount of levy collected, which will change year on year.

Given their extensive knowledge of the flood risk profile down to the local level, the Environment Agency and its equivalents in the devolved Administrations are the key advisers to government on flood risk and changing levels of risk over time. In England, the Environment Agency leads a dedicated climate-ready support service, conducts the long-term assessment of future investment needs and provides the national assessment of flood risk and flood mapping, which takes account of all types of risk.

If I understand the intention of the amendment correctly, the nub of the concern seems to be that the modelling used to assess the size of the Flood Re pool

31 Mar 2014 : Column 781

and the numbers supported needs to be robust and take into account changing risk. Flood Re’s finances also need to be resilient to the inherent variability of annual flood claims and to factor in changing risk over time. The core of this is making sure that Flood Re holds enough capital to be able to cover claims up to the limit of its liabilities. Under European Solvency II legislation, which governs the insurance sector and will be in force from 1 January 2016, all insurance firms will be required to hold enough capital to cover a one-in-200-year level of claims. Therefore, Flood Re will be required under EU law to hold capital reserves at a level equivalent to its liability.

To assess what level of capital is needed, insurers have detailed catastrophe models. The modelling to assess such events must be kept up to date and will reflect any changes in levels of insured risk. This will include changes as a result of climate change. As an authorised reinsurer operating under the requirements of Solvency II, Flood Re will be bound by these same requirements.

Lord Hunt of Chesterton (Lab): When the Minister refers to one in 200 years, that assumes that the next 200 years will not be the same as the previous 200. Things are changing very rapidly. Is this estimate really based on the rapid changes of climate that we are seeing? That is the purpose of referring the matter to the Committee on Climate Change. The committee is much more aware of the dynamical changes than the industry, which is essentially using past, rather static data.

Lord De Mauley: My Lords, I agree with the objective that the noble Lord refers to. Floor Re will need to take account of climate change as part of its regulatory obligations in ensuring that it remains solvent over time. We would expect Flood Re to seek the best available advice on climate change and seeking external verification of its assumptions will form part of Flood Re’s operations.

It seems that one of the other concerns underlying this amendment is whether Flood Re is based on the best available evidence, including on climate change. I assure noble Lords that the data and actuarial assumptions underlying the scheme have been independently assessed by Professor Stephen Diacon. In addition, extensive modelling, using a model that was quality-assured by the Government Actuary’s Department, has been carried out by the Government using these data. Flood Re’s modelling will be updated on an ongoing basis.

I again put on the record that Flood Re has been designed to be flexible and will be able to adapt to changing levels of risk over the 25-year lifespan of the scheme. Climate change projections were considered, alongside other risk factors, during the design of the policy, and the effects of climate change will continue to be considered during future levy-setting discussions. The insurance industry, with its expertise in risk assessment and forecasting, is at the forefront of assessing the impacts of climate change, because assessing risk accurately is an essential tenet of its business.

31 Mar 2014 : Column 782

Baroness Jones of Moulsecoomb (GP): My Lords, I noticed that the Minister spoke of adaptation but he has not spoken about mitigation. Quite honestly, if you concern yourself only with adaptation, you simply will not be able to keep up with the changes. Are the Government thinking about mitigation in these circumstances as well?

Lord De Mauley: Of course, my Lords. If the noble Baroness will forgive me, I have to deal with the amendment before me, which goes primarily to the issue of adaptation. Of course we are working on mitigation as much as we can. The noble Baroness will have seen quite a lot of publicity over the weekend on that very matter. She indicates that she has not but she will believe me if I show her that there was such publicity from the Department of Energy and Climate Change.

The Association of British Insurers and a number of leading insurers have signed up to the ClimateWise principles for insurers. The six principles include a commitment to publish an annual statement of action taken and to:

“Support Government action, including regulation, that will enhance the resilience and reduce the environmental impact of infrastructure and communities”.

While, for the reasons I have set out, I feel strongly that the amendment is unnecessary, I state categorically that this in no way reflects a lack of commitment from the Government on the vital matter of flood risk and climate change. During this Parliament we will be spending record amounts on managing flood risk and our new funding approach is set to attract more contributions from local partners than ever before. We have also made an unprecedented six-year commitment to record levels of capital investment in improving defences up until 2021.

5.15 pm

Noble Lords have often cited the projected increases in flood risk that were outlined in the climate change risk assessment. Although these projections must and will of course be heeded, it is important to remember that this study was indicative in nature and, crucially, did not take into account any new defences that would be built over that period. It modelled the impact of climate change based on the flood defences at the time. We are also getting better at forecasting and warning people when flooding is anticipated. The Flood Forecasting Centre combines the knowledge and experience of the Met Office and the Environment Agency to deliver longer lead times for flood alerts and more accurate, targeted information to responders. This provides people in areas at risk of flooding with more time to protect themselves and their homes from the effects of flooding. Managing flood risk is a joint effort. We are already taking steps to make this easier; for instance, by supporting a number of projects across the country which are looking at what action communities can take and by making it easier for farmers to manage watercourses to reduce the risk of flooding.

As I expect your Lordships know, businesses and homeowners affected by flooding this winter will be eligible for grants of up to £5,000 per house and per

31 Mar 2014 : Column 783

business under the repair and renew grant to help people build in better resilience to flooding. The Government are committed to ensuring that our country is resilient to the impacts of climate change and that flood risk is managed effectively. For the reasons I have set out, I am confident that these amendments are not needed and I hope that the noble Lord will agree to withdraw his amendment.

Lord Grantchester: My Lords, it surely would be beneficial for the Secretary of State to take the advice of the Committee on Climate Change. The noble Lord, Lord Krebs, accepts the task. Target numbers should not solely be based on figures from the insurance industry and should recognise the changes in climate as a fundamental element of the change in the nature of Flood Re over the next 25 years.

Let us be clear. In relation to an earlier amendment, the noble Lord, Lord Crickhowell, quoted Hiscox which said that, of 885,000 homes in high-risk areas, around 350,000 of them will be excluded, which is around 4% of the housing stock. A more telling statistic is that this is 40% of the high-risk properties. I understand the picture is complicated by the fact that much flooding occurs outside high-risk areas. The nature and scope of flooding are changing rapidly. I am told that 80% of its claims for recent floods came from homes that Hiscox did not consider to be at risk of flood. If this is the position today, how can we hope to keep abreast of the situation over the next 25 years of this scheme without recognised, independent expertise as could be provided by the Committee on Climate Change?

I hope that the noble Earl, Lord Lytton, will reflect on the nature of change and the size of the risk of flooding over the next 25 years and will join me in the Contents Lobby. I am expecting the work of the noble Lord, Lord Krebs, to be a prophet for the future as well as an assessment of the insurance industry, which I hope will persuade the noble Earl, Lord Cathcart, that science should also have a role. Flooding and climate change are matters of huge impact to more and more people. I wish to test the opinion of the House.

5.17 pm

Division on Amendment 89A

Contents 175; Not-Contents 223.

Amendment 89A disagreed.

Division No.  1

CONTENTS

Adams of Craigielea, B.

Adonis, L.

Ahmed, L.

Alli, L.

Anderson of Swansea, L.

Andrews, B.

Bach, L.

Bakewell, B.

Bassam of Brighton, L. [Teller]

Beecham, L.

Berkeley, L.

Billingham, B.

Blackstone, B.

Boateng, L.

Borrie, L.

Bradley, L.

Bragg, L.

Brennan, L.

Brooke of Alverthorpe, L.

Brookman, L.

Browne of Ladyton, L.

31 Mar 2014 : Column 784

Carter of Coles, L.

Chandos, V.

Clancarty, E.

Clark of Windermere, L.

Clarke of Hampstead, L.

Clinton-Davis, L.

Collins of Highbury, L.

Corston, B.

Crawley, B.

Cunningham of Felling, L.

Davidson of Glen Clova, L.

Davies of Oldham, L.

Dean of Thornton-le-Fylde, B.

Donaghy, B.

Drake, B.

Evans of Temple Guiting, L.

Falkland, V.

Farrington of Ribbleton, B.

Faulkner of Worcester, L.

Foster of Bishop Auckland, L.

Foulkes of Cumnock, L.

Gale, B.

Gavron, L.

Gibson of Market Rasen, B.

Giddens, L.

Glasman, L.

Golding, B.

Goldsmith, L.

Gordon of Strathblane, L.

Goudie, B.

Grantchester, L.

Griffiths of Burry Port, L.

Grocott, L.

Hanworth, V.

Harris of Haringey, L.

Harrison, L.

Hart of Chilton, L.

Haskel, L.

Haughey, L.

Haworth, L.

Hayman, B.

Hayter of Kentish Town, B.

Healy of Primrose Hill, B.

Henig, B.

Hilton of Eggardon, B.

Hollick, L.

Hollis of Heigham, B.

Howarth of Newport, L.

Howe of Idlicote, B.

Howells of St Davids, B.

Hoyle, L.

Hunt of Chesterton, L.

Hunt of Kings Heath, L.

Irvine of Lairg, L.

Jay of Paddington, B.

Jones, L.

Jones of Moulsecoomb, B.

Jones of Whitchurch, B.

Jordan, L.

Judd, L.

Kennedy of Cradley, B.

Kennedy of Southwark, L.

Kennedy of The Shaws, B.

Kerr of Kinlochard, L.

King of Bow, B.

Kinnock, L.

Kinnock of Holyhead, B.

Kirkhill, L.

Krebs, L.

Layard, L.

Lea of Crondall, L.

Leitch, L.

Levy, L.

Liddell of Coatdyke, B.

Liddle, L.

Lipsey, L.

Lister of Burtersett, B.

McAvoy, L.

McConnell of Glenscorrodale, L.

Macdonald of Tradeston, L.

McFall of Alcluith, L.

McIntosh of Hudnall, B.

McKenzie of Luton, L.

Mandelson, L.

Mar, C.

Martin of Springburn, L.

Masham of Ilton, B.

Massey of Darwen, B.

Maxton, L.

Mendelsohn, L.

Mitchell, L.

Monks, L.

Moonie, L.

Morgan, L.

Morgan of Ely, B.

Morris of Aberavon, L.

Morris of Handsworth, L.

Morris of Yardley, B.

Noon, L.

O'Neill of Clackmannan, L.

Patel, L.

Patel of Blackburn, L.

Patel of Bradford, L.

Pendry, L.

Pitkeathley, B.

Plant of Highfield, L.

Ponsonby of Shulbrede, L.

Prescott, L.

Prosser, B.

Quin, B.

Radice, L.

Ramsay of Cartvale, B.

Rea, L.

Rendell of Babergh, B.

Richard, L.

Rooker, L.

Rosser, L.

Rowlands, L.

Royall of Blaisdon, B.

Sawyer, L.

Scotland of Asthal, B.

Sherlock, B.

Simon, V.

Smith of Basildon, B.

Smith of Finsbury, L.

Snape, L.

Stevenson of Balmacara, L.

Stone of Blackheath, L.

Symons of Vernham Dean, B.

Taylor of Blackburn, L.

Taylor of Bolton, B.

Temple-Morris, L.

Thornton, B.

Tomlinson, L.

Truscott, L.

Tunnicliffe, L. [Teller]

Turnberg, L.

Turner of Camden, B.

Uddin, B.

Wall of New Barnet, B.

Warner, L.

Warwick of Undercliffe, B.

Wheeler, B.

Whitaker, B.

Whitty, L.

Wigley, L.

Wilkins, B.

Williams of Baglan, L.

Williams of Elvel, L.

Wills, L.

Wood of Anfield, L.

Woolmer of Leeds, L.

Worthington, B.

Young of Norwood Green, L.

31 Mar 2014 : Column 785

NOT CONTENTS

Addington, L.

Ahmad of Wimbledon, L.

Alderdice, L.

Anelay of St Johns, B. [Teller]

Arran, E.

Ashdown of Norton-sub-Hamdon, L.

Astor of Hever, L.

Attlee, E.

Avebury, L.

Baker of Dorking, L.

Bakewell of Hardington Mandeville, B.

Balfe, L.

Barker, B.

Bates, L.

Berridge, B.

Bichard, L.

Black of Brentwood, L.

Blencathra, L.

Bonham-Carter of Yarnbury, B.

Boothroyd, B.

Borwick, L.

Bottomley of Nettlestone, B.

Bourne of Aberystwyth, L.

Bowness, L.

Brabazon of Tara, L.

Bradshaw, L.

Brougham and Vaux, L.

Browning, B.

Byford, B.

Caithness, E.

Cameron of Dillington, L.

Campbell of Surbiton, B.

Carrington of Fulham, L.

Cathcart, E.

Chidgey, L.

Clement-Jones, L.

Colville of Culross, V.

Colwyn, L.

Condon, L.

Cope of Berkeley, L.

Cormack, L.

Cotter, L.

Courtown, E.

Craigavon, V.

Crickhowell, L.

De Mauley, L.

Deighton, L.

Denham, L.

Dholakia, L.

Dixon-Smith, L.

Dobbs, L.

Dykes, L.

Eaton, B.

Eccles, V.

Eccles of Moulton, B.

Elton, L.

Erroll, E.

Falkner of Margravine, B.

Faulks, L.

Fearn, L.

Feldman, L.

Fellowes, L.

Finkelstein, L.

Finlay of Llandaff, B.

Fookes, B.

Framlingham, L.

Freeman, L.

Freud, L.

Garden of Frognal, B.

Gardiner of Kimble, L.

Gardner of Parkes, B.

Geddes, L.

Glasgow, E.

Glenarthur, L.

Gold, L.

Goodlad, L.

Greenway, L.

Grender, B.

Griffiths of Fforestfach, L.

Hamilton of Epsom, L.

Hamwee, B.

Hanham, B.

Hastings of Scarisbrick, L.

Henley, L.

Higgins, L.

Hill of Oareford, L.

Hodgson of Abinger, B.

Hodgson of Astley Abbotts, L.

Hollins, B.

Holmes of Richmond, L.

Hooper, B.

Hope of Craighead, L.

Horam, L.

Howard of Lympne, L.

Howarth of Breckland, B.

Howe, E.

Howe of Aberavon, L.

Humphreys, B.

Hunt of Wirral, L.

Hussain, L.

Hussein-Ece, B.

James of Blackheath, L.

Jenkin of Kennington, B.

Jenkin of Roding, L.

Jolly, B.

Jones of Cheltenham, L.

Jopling, L.

Kakkar, L.

Kirkwood of Kirkhope, L.

Knight of Collingtree, B.

Kramer, B.

Laming, L.

Lang of Monkton, L.

Lawson of Blaby, L.

Leach of Fairford, L.

Lee of Trafford, L.

Lexden, L.

Lindsay, E.

Lingfield, L.

Liverpool, E.

Livingston of Parkhead, L.

Loomba, L.

Lucas, L.

Luke, L.

Lyell, L.

Lytton, E.

McColl of Dulwich, L.

MacGregor of Pulham Market, L.

Maclennan of Rogart, L.

McNally, L.

Maddock, B.

Manzoor, B.

Mar and Kellie, E.

Marks of Henley-on-Thames, L.

Marlesford, L.

Mawson, L.

Mayhew of Twysden, L.

Meacher, B.

Morris of Bolton, B.

Moynihan, L.

Naseby, L.

Nash, L.

Neville-Jones, B.

Newby, L. [Teller]

Noakes, B.

Northbrook, L.

31 Mar 2014 : Column 786

Northover, B.

O'Cathain, B.

O'Loan, B.

Paddick, L.

Palmer of Childs Hill, L.

Palumbo, L.

Parminter, B.

Perry of Southwark, B.

Popat, L.

Powell of Bayswater, L.

Purvis of Tweed, L.

Rana, L.

Randerson, B.

Rawlings, B.

Redesdale, L.

Ribeiro, L.

Risby, L.

Rodgers of Quarry Bank, L.

Rogan, L.

Roper, L.

Rowe-Beddoe, L.

Ryder of Wensum, L.

Sassoon, L.

Scott of Needham Market, B.

Seccombe, B.

Selborne, E.

Selkirk of Douglas, L.

Selsdon, L.

Shackleton of Belgravia, B.

Sharkey, L.

Sharp of Guildford, B.

Sharples, B.

Shaw of Northstead, L.

Sheikh, L.

Shephard of Northwold, B.

Sherbourne of Didsbury, L.

Shipley, L.

Slim, V.

Smith of Clifton, L.

Spicer, L.

Stedman-Scott, B.

Stewartby, L.

Stirrup, L.

Stoneham of Droxford, L.

Stowell of Beeston, B.

Strasburger, L.

Suttie, B.

Taylor of Goss Moor, L.

Taylor of Holbeach, L.

Thomas of Gresford, L.

Thomas of Swynnerton, L.

Thomas of Winchester, B.

Tonge, B.

Tope, L.

Trenchard, V.

Trimble, L.

True, L.

Tugendhat, L.

Tyler of Enfield, B.

Ullswater, V.

Valentine, B.

Verma, B.

Wakeham, L.

Wallace of Saltaire, L.

Wallace of Tankerness, L.

Walmsley, B.

Walpole, L.

Warnock, B.

Wasserman, L.

Wheatcroft, B.

Wilcox, B.

Williams of Crosby, B.

Willis of Knaresborough, L.

Wilson of Tillyorn, L.

Wrigglesworth, L.

Young of Hornsey, B.

Younger of Leckie, V.